The Provision of Pensions Upon Retirement - Research Paper Example

Retirement is the condition where an individual ceases active or direct employment. Retirement can be total, where the individual terminates the total number of working hours completely or partial retirement where he or she reduces the number of working hours. Globally, most individuals choose to retire when they are eligible for pension or retirement benefits. Alternatively, one may be compelled to retire as a result of incapacitation or subsequent inability to effectively execute duties, illness, or prohibitive law. Prior to the 19th Century, retirement was uncommon due to the average low life expectancy and absence of retirement benefits. As a result, workers continued working until their old age and death. Retirement was first introduced in Germany as the first country in the late 19th Century and with it, pension benefits were introduced and adopted (Feldstein & Liebman, 2002). In most developed countries and emerging economies, systems have been put in place to facilitate the provision of pensions upon retirement. These services can be financed by the respective states or employers. In less developed countries, the support of elderly is mainly provided by their families. A person has the right to retire at any age they desire. However, a state’s laws pertaining tax, terms of employ or pensions dictate a standard age accepted as the retirement age. The standard retirement age for different countries varies generally between the ages of 50 and 70 (Costa, 2000). In the United States, a lot of factors influence people’s decisions on retirement. A major contributing factor to this is Social Security. Social Security is a program for social insurance, which provides protection in a social sense against old age, illness, unemployment, poverty, disabilities among others. United States citizens are likely to retire a little earlier than the standard retirement age, which is 65 years, concurring with the public pension system (Costa, 2000). However, it is hard to conclude that financial incentives influence this retirement age. This is because the different financial incentives accorded to employees to retire offer mixed results as their results are actuarially fair. This means that the current value of retirement benefits does not vary with time. The value of the benefits does not increase whether considered at present or at a future time. Research has shown that individuals positively react significantly to the presence of financial incentives determining the age at which they retire (Feldstein & Liebman, 2002). Attractive packages for retirement at the full age or public standard age of a state for employees may influence the workers to continue working to reach this target so as to benefit fully from these packages. Greater wealth owned by individuals and high standards of living contribute to earlier ages of retirement (Jeffrey, 2006). This is because, they are more secure about their futures and are more inclined to enjoy their wealth without commitments of employment. In addition, they feel insured against the risk of poverty. The effect of wealth on individuals and their retirement ages is difficult to determine through empirical means because the source of the wealth might be as a result of lifetime savings over their productive life. This is partly due to the anticipation of early retirement. Economists have determined the effects of wealth on retirement and found that these effects are considerably small. According to Jeffrey (2006), “receiving an inheritance increases the probability of retiring earlier than expected by 4.4 percentage points, or 12 percent relative to the baseline retirement rate, over an eight-year period” (p. 79). The effects of wealth shocks on employment are evaluated. In the United States, Americans are increasingly working past the traditional age of 65. The percentage of citizens past this age that are working has increased steadily in the recent decades from an average of 11.4 percent in 1990 to 16.2 percent in the year 2010 (Broom, 2012). In fact, the trend is expected to increase or accelerate as the number of baby boomers entering the retirement age increases. A negative effect of senior citizens occupying jobs past the accepted retirement age is that they hold onto jobs thereby reducing the number of openings that are available for new candidates and younger members of the society. In some first entry vacancies and markets, senior citizens are occupying entry level jobs that are generally considered or that were predominantly for the young people. An example is the increasing number of senior citizens working at fast food restaurants in the U.S. Research indicates that a record has been set for the initial time of teens have been outnumbered by senior citizens in the US labor force (Costa, 2000). Reasons for working past this age varies with individuals. Some of the reasons cited for this trend include love of their work, the fear of walking away or leaving behind the security of a pay check or health cover as well as fears arising from uncertainties in a troubled economy. The reality of retirement and its experiences by retirees might not be as it is portrayed by the media but might contain similarities to the images portrayed. Experiences and perceptions vary with individuals. Various factors determine the condition of a retiree and his or her living standards. Finances are a key facet of livelihood that contributes to varied stress levels in an individual or class of individuals. An individual with a comprehensive retirement benefit plan, adequate life savings, alternative sources of income and investments will be less worried about his or her daily living expenses in the absence of a pay check (Costa, 2000). Another factor that determines the levels of stress experienced by individuals is the amount of idle time (Jeffrey, 2006). Working indulges one’s mind and little or no time is left for wandering thoughts and self reflection. Pitiful thoughts and sentiments of failure by individuals have been proven to be stress inducing. The excess time on one’s hands upon retirement can lead to similar effects. Neglect by family members and inadequate care can also affect the mental health of senior citizens in their old age. Apart from these factors, retirement is a stress free experience in appreciation of a full life and countless blessings. Retirees should reflect on their past working days with pride. In conclusion, retirement for all people is inevitable. This is irrespective of whether it is due to deteriorating health, physical incapacitation, and attainment of the regulated retirement age or even death. The individual may also retire out of free will where he or she would rather engage in alternative income generating activities or as an entrepreneur. In addition, the acquisition of adequate wealth to guarantee sufficient financial sustenance can prompt an individual to seek premature or early retirement. The respective state’s tax legislation, pension benefits programs or unions also play a role in determining the age accepted as the standard retirement age. In the United States, the accepted standard age of retirement is between 62 and 65 varying with employment bodies and corporations. This age bracket has also been accepted by provident funds and government. It is not a wonder, therefore, that most retirement packages are tailored with forecasting this age bracket. As a consequence, most employees conform to the retirement at this age aiming for eligibility of several lustrous packages offered by provident funds. References Broom, J. (2012) More Americans Working Past Traditional Retirement Age. Seattle Times. Retrieved April 5, 2012, from http://www.standard.net/stories/2012/01/04/more-americans-working-past-traditional-retirement-age Costa, D. (2000). The Evolution of Retirement: An American Economic History, 1880-1990. University Of Chicago Press Feldstein, M. & Liebman, J. (2002). Social Security in Handbook of Public Economics, Vol. 4, Elsevier Press Jeffrey, R. (2006). The Effect of Inheritance Receipt on Retirement. NBER Working Paper No. 12386 Read More