Features of Retirement in the United States - Coursework Example

RETIREMENT IN THE UNITED S Bana Asgedom Introduction Retirement in the United s has been a topic of debate in mostforums. From the age of no retirement, to early retirement to late retirements, Americans respond to retirement based on the economic conditions of the nation. The great depression has impacted heavily on retirement. While young people consider early retirement, old people near the age of retirement understand the need to be in employment for longer due to the economic realities of being out of employment without adequate benefits. Background of retirement in the United States Initially, the retirement concept was inexistent. This is because there were no old people. During the Stone Age times, no one was unemployed; employment rate was 100%. Back in the history when someone became too old to perform any task, the best option he could do was to move in with his kids. Centuries passed and the population was increasing, which is directly proportional to the population of old people. During the medieval period the number of old people were substantial and thus critical. The old people had wealth that the young desired to inherit, though some were inpatient and cases of patricide started becoming rampant. The fact the old people were clinging on their wealth it was a threat to the economic and social fabric of colonial America. The first person who can be attributed to force the elderly into retirement can be said to be Puritan Zealot Cotton Mather. He requested them to be wise and retire, but the elderly didn’t listen to him. Retirement was invented by Bismarck. In 1883 when the Marxists were threating to take over Europe, he took a quest to help his countrymen resist their blandishment. He stated that he would pay pension to any non-working German who had attained the age of 65. On this note he was setting a standard at which the old age would began, and that the government should pay and compensate those growing old. During the Industrial Revolution the in the United States, aging workers were wondering outside the factory, they were performing minor accidents in the work place, the assembly line was been slowed, they took many personal day off and the revolution was needing more young and energetic workers (Moody, 2010). The old people were not productive and something had to be done urgently. During the Industrial revolution in there was also an upsurge in the level of unemployment, this was due to the ones that refused to retire. During the Great Depression the situation was even worse, and this made retirement as the only and the better option. It became a hard reality for this old people to accept the situation, and only those who were tough retained in the job (Chan & Stevens, 2001). In 1935, it was figured out that the only way that the old people could be made to stop working was to pay them enough money to sustain them in their retirement. Francis Townsend, a Californian, initiated a popular movement which recommended a mandatory retirement age of 60 years. This scenario required the government to pay pensions of a monthly amount of $200; this was an amount that was equivalent to a middle-income earner of that time (Andrew et al, 2005). This was very shocking to the president, Franklin D. Roosevelt and prompted him to propose the Social Security Act of 1935. This Act was supposed to compel workers to pay their own insurance to cater for their old age (Blau et al, 2003). The act established the retirement age to be 65, it was also thought that after the age of 65, a person would not live for long. The Social Security Act was amended in 1956 to allow women to designate early, and the benefits were reduced to the age of 62, the full benefit though held for women who considered to retire at the age of 65 (Employee Benefit Research Institute, 2003). In 1974 there was a very important law that was endorsed, The Employee Retirement Security Act of 1974 (ERISA). This law required more exposé regarding a plan to participants and the government such as summary plan report and statements of the participants accumulated benefit upon demand. In 1984 the Retirement Equity Act (REA) was enacted and it amended participation rules, it was now possible for a person aged 21 to enroll in a retirement plan as well as participate in a vesting service. REA also amended other important clause that had been billed earlier. Review Gallup (2014), has found the age of 62 to be the average age at which United States workers retired. The average age in which the non-retired Americans expect to retire is 66, which is an increase from the 2002 which was 63. This survey was conducted on April-3-6, 2014. Gallup required the retired Americans to provide their retirement age, and non-American the age which they expect to retire. From the statistical analysis it can be deduced that the American’s average self-reported age has moved upward. The reason as to why the retirement age has been increasing is because baby boomers are reluctant to retire. It can be attributed to the fact that the old Americans in the work place are reluctant to retire due to the Great recession, which resulted too many persons unable to save. Since Gallup began tracking both trends it has been deduced that Americans that the age which the citizens are supposed to retire is consistently higher than the average age which they retire. This can be a reflection on the changes of Social Security eligibility and the economic conditions that working Americans presently face. It is also hard to find an employer who is practices employer-sponsored pension, since they may be recovering from the Great recession (Burkhauser et al, 1996). It is also imperative to note that young Americans are opting to retire before they attain the age of 55. This is because the young Americans are not aware of the financial implications that are attributed to funding, unlike the middle-aged who are very familiar with the situation. The survey from gallop implicate that the landscape of retirement has been evolving, changes have been occurring such as benefits that are associated with social security, lifestyle choices like willing to retire even after attaining the retirement age, and changes in employer-sponsored retirement plans. Discussion The retirement age in America has been on the rise as potential retirees are faced with the hardest decisions to make when considering to retire. Timing is important when preparing for retirement. This is because times have changes tremendously compared to the 1980s when retirees used to benefit from great success from their investments and retirement plans. There are different factors that have contributed to the rise in the retirement age, thus, potential retirees should be aware of. First, the bank rate have drastically gone up since recession, thereby leaving the retirees with very little resources to retire with. During the 1980s, retirees used to reap great benefits as they could withdraw about 4% from their investment and still retain a substantial amount of funds that ensures steady growth. Workers at that period were able to retire early as the economy was booming, there was low inflation, bull market returns and strong yields (Brown, 2002). However, retirees in this decade are faced with economic difficulties of retiring early as they are not assured of a high yield, market bull returns or low inflation. In fact, the opposite is true. According to statistics revealed by a survey by Gallup Group, the retirement age presently stands at 61 and it is set to go even higher given the persistence deterioration of the economy. The 2008 great recession was a game changer in American retirement as it shifted the mindset of workers towards work. Presently, more workers appreciate the value of work due to the high rate of unemployment, mandatory retirement age, decrease in jobs, and composition of the workforce among other factors. There is little preparedness on the part of the American workers towards their retirement. Most of them have very little resources tucked away to use when they retire. This is because very few people calculate the money they will need to use when they finally leave employment. As such, their savings are negligible as opposed to their needs after retirement. The percentage of workers who have calculated the amount of money they will need to use after the retirement tend to be heavy savers. Such people invest in their retirement plan and have over $100,000 in savings and investments (Employee Benefit Research Institute, 2014). Most people who lack a retirement plan and fail to track their savings towards their retirement always have common excuses for it. It is either that the cost of living is too high thereby taking almost all their incomes, or the daily expenses are swelling up leaving nothing to save. This trend places a gap between high income earners and low income earners as high income earners have the ability to save more after deduction of the daily expenses. As such, they have greater retirement confidence than low income earners. The result of the tendency of workers consuming all the money devoid of savings makes them remain longer in employment thereby delaying retirement. The biggest regret for most retirees is their inability to save while they were in employment. This leads to pilling up of debts with 44% of retires affirming to have high levels of debts, running short of funds as over 58% of the retirees have saved less than $25,000. As such, such circumstances force them to work at old age for pay, either full time or part time (Employee Benefit Research Institute, 2014). Savings for retirement is one of the retirees’ nightmare. The pension funds and benefits are not as lucrative as they were before the great depression and therefore, retirees are required to have their own savings for a comfortable life after retirement. Retirees also get support from mutual funds only by private subscription. However, in most cases, the amount of not much and is dependent on member contribution. The cost of retirement weighs heavily on the government budget as the number of people retiring is more than the retirement kitty. This has led to many debates on the issues with the state preferring to have a later retirement age due to the economic benefits of postponing retirement. The cost of retirement of the part of the retirees is not only influenced by the day to day expenses, but also the cost of health care (Weaver, 2010). Most retired people in America suffer from health deterioration with a large percentage of newly retired people suffering from depression due to the change in lifestyle, loss of contact with many people and the new way of life. As such, they become ill most often and need to have adequate medical provision. Planning for retirement in the USA has changed compared to retirement in the 1980s. Retirees are required to be well prepared financially by calculating the amount of money they will need in their golden years and have it saved up. The cost of living has risen while the income benefits of retires has gone down immensely. As such, saving and planning for refinement helps retirees live comfortably while avoiding depression and debts. The retirement age in the USA can be correlated with other nations across the globe. This is because the great depression of 2008 affected all the countries and thereby placed immense economic pressure on the government in terms of employment and retirement benefits to offer to its employees. This has led to progressive retirement age in most of the countries. In America, the retirement age has risen form 61, 65 and is progressing to 67. In other countries, the trend has been the same as with Kenya, France, Spain, and China among many others. The retirement age in Kenya rose from 55 years to 60 years, in Spain, it rose from 63 to 67 while in France, it rose from 62 to 67. This trend is attributed to the governments’ need to postpone the retirement age in order to cut down on the cost of retirement. References Au, Andrew, Olivia S. Mitchell, and John W.R. Phillips, (2005), Saving Shortfalls and Delayed Retirement, University of Michigan Retirement Research Center Working Paper 2005-094. Blau, David M. and Donna B. Gilleskie, (2003), The Role of Retiree Health Insurance in the Employment Behavior of Older Men, National Bureau of Economic Research Working Paper 10100, Cambridge, MA. Brown, Charles, (2002), Early Retirement Windows, University of Michigan Retirement Research Center Working Paper, 2002-028, Ann Arbor, MI. Burkhauser, Richard V., Kenneth A. Couch, and John W. Phillips, (1996), Who Takes Early Social Security Benefits? The Economic and Health Characteristics of Early Beneficiaries, The Gerontologist, 36, 789-99. Butrica, Barbara A., Howard M. Iams, & Karen Smith. (2003). It’s All Relative: Understanding the Retirement Prospects of Baby Boomers. Center for Retirement Research at Boston College. Boston. Chan, Sewin and Ann Huff Stevens, (2001), Job Loss and Employment Patterns of Older Workers, Journal of Labor Economics, 19/2, 484-521. Employee Benefit Research Institute. (2003). EBRI Research Highlights: Retirement Benefits. Employee Benefit Research Institute. (2014). EBRI Research Highlights: Retirement: A third have less than $1,000 put away. Employee Benefit Research Institute. Washington, DC: Moody, H. R. (2010). Aging: Concepts and Controversies. Thousand Oaks, CA: Pine Forge Press. Weaver, C. Health care jobs grew as other sectors withered. Retrieved January 8, 2010 at http://www.npr.org/ Read More