Your Investments: Pope Benedict and retirement age
Retiring at 65 is not a G-d-given right. It was based on life expectancy.
Prime Minister Binyamin Netanyahu meeting with Pope Benedict XVI in Nazareth, May 14, 2009. Photo: REUTERS/Osservatore Roman
The recent shock retirement of 85-year-old Pope Benedict XVI, the first papal
retirement in more than 600 years, has brought work/life balance issues during
retirement into the forefront. While it used to be that you basically worked
until you died, today many retirees can expect to live 20 to 30 years in
retirement, and the question of how to fill all that time is just as important
as how to fund all that time. It’s an issue that I see all the time with
clients, and unfortunately it doesn’t get much press. I will speak more about it
in an upcoming column.
Another issue that the pope’s retirement has
brought to the forefront is that of the retirement age. With the social safety
net crumbling in country after country, one of the best ways for governments to
save money is by raising the retirement age. This way those workers in their
mid-60s still pay into the system, and the system delays having to pay them
retirement benefits. While Israel lacks the same demographic issues that are
common in the West, it shares the same budget crunch. As a result, the Finance
Ministry is working on a plan to raise the retirement age gradually to
The Finance Ministry is focusing on economics, Globes reported, and
according to one of its officials: “On the macroeconomics side, rising life
expectancy and the growth of the working-age population is falling to below 2.2
percent, which means less economic growth. If we’ve gotten used to 3%-4% GDP
growth a year, within 20 years we’ll have 2.5%-3% growth – automatically. You
must increase the labor force.”
A look at the data According to the
American Academy of Actuaries, the retirement age in the US was set at 65 way
back in 1940. At that time the average life expectancy of a 65-year-old retiree
was 12.7 years for a male and 14.7 years for a female.
In the 70 years
since then, it’s now over 18 years for a man and over 20 for a woman. If
individuals are living longer, there is no reason that they can’t work longer.
It’s great for the economy and keeps the older individuals working, which is
exactly what many want to do in any case.
Additionally, the longer they
work, the easier it will be to fund their remaining retirement years. One of the
biggest issues facing retirees is funding all of those post-retirement years and
the lifestyle that leisure brings. As I have mentioned here many times, I have
rarely seen someone who no longer works spend less money than when they were
working. Or for you mathematicians: Leisure equals money spent. By allowing
workers to work longer, they won’t need to start tapping into their benefits or
savings, and they can increase their savings by continuing to put money
The other side of the coin Unfortunately, not everyone agrees with
this cure. In this past Sunday’s Jerusalem Post editorial said there is no need
to raise the age because it will cause more harm than good.
facile solution both here and abroad is to keep the oldsters from retiring,” it
said. “That translates to paying out less while the economy keeps profiting from
their labor and extensive experience.”
Why is this “facile”? This is
common sense; it’s not superficial.
If people keep working, the economy
keeps growing, they keep saving and the government has to pay out less – that’s
how an economy works.
The next argument is: “The danger, though, is that
instead of enjoying the best of all worlds, a worst-case scenario would manifest
for all of society’s components. If older citizens are required to work more
years, they’ll per force deny younger applicants jobs. More likely, though, is
that as employees age, they’ll be sacked because long tenure inevitably makes
them expensive to their employers.”
Is employment a zero-sum game? The
author seems to imply that if one person works, it automatically means that
someone else does not. The problem is that a growing economy creates jobs, and
that means there will be both work for “oldsters” and younger applicants. The
hottest issue in coalition talks has been about “sharing the burden” vis-avis
military service. Well the bigger issue is economic.
According to the
same Finance Ministry official, “Today, there is one retiree for every five
workers. The ratio is plummeting, and in the next decade, the ratio will be one
retiree for every three workers.” Talk about sharing the burden.
been well documented that Israel is in need of more engineers and other skilled
workers. There is no hard evidence that by raising the retirement age, suddenly
we will have a rash of age-discriminatory firings, and in fact the absurdity
that the Knesset needs to pass a bill for doctors to work past 70 is
Retiring at 65 is not a G-d-given right. It was based on life
expectancy, and it only makes sense that as people live longer, it should be
raised accordingly. It’s good for the economy and good for the
firstname.lastname@example.org Aaron Katsman is a licensed
financial adviser in Israel