Thursday, November 14, 2013

Is age 70 or 75 becoming the new 65?

I was in Washington, DC last week speaking on the impact demographic change is having and will continue to have on workplaces.  After the “Global Economic Crisis” and severe recessions in many countries, there is evidence that workers delaying retirement and even re-entering the labour force.  Demographic changes is also having an impact on the supply of qualified younger workers to take the place of older workers poised to exit the labour force. 

Social Security’s retirement age is 70.  The simple fact is that monthly benefits are highest at age 70 and are reduced actuarially for each year they are claimed before age 70.  This is a relatively new development, which may explain why Social Security’s retirement age is the best-kept secret in town.  But I think it’s time we told folks.   And then we need to clarify what all this talk about raising the so-called full retirement age really means.

US Social Security and the Canada Pension Plan (CPP) are similar in many ways.  CPP also provides the greatest benefit to those who postpone receipt to age 70. Yes, 65 is still the reference year for retirement but waiting has its rewards and these are increasing.   From 2011 to 2013, the Government of Canada has gradually increased the incentive to delay collecting CPP.  As of this year, 2013, if you start receiving your CPP pension at the age of 70, your pension amount will be 42% more than it would have been if you had taken it at 65. 

Put another way, if you assume the point of view of age 70 as the reference year at 100%, then retirement at age 65 has an initial monthly CPP payment of only 70.4% of the monthly amount at age 70.  Because CPP is also increasing the “penalties” for retiring early, in 2013, a 60 year old retiree would get only 47.6% of the retiree delaying receipt of CPP to age 70. 

Now, for many people the incentive or penalty is irrelevant.  Health and income may simply make delaying receipt of CPP out of the question.  For others, particularly those that are in relatively good health and who may have invested heavily in education before starting work, work beyond age 65 may be a necessity.  The employment rate of for males 65 and over with a university degree was 25.3% in 2012.  For those 65 and older with educational attainment above a bachelor’s degree, the employment rate was nearly 30% in that year.  Both the employment rate and actual numbers of these older workers is increasing.  [CNSIM Table 282-0004 Canada, Employment rate by Educational Attainment for selected age groups 2012].

Canada and the US are well above the OECD average for life expectancy.  The life expectancy and labour force participation rate for those over the age of 65 are also above average-- and rising-- but still below  life expectancy and participation rates in some countries such as Sweden.  Sweden’s centre-right  Prime Minister,  Fredrik Reinfeldt , recently put it bluntly:  Swedes should be prepared to work until they are 75 and to change careers in the middle of their work life if they are to keep the welfare standards they expect.  He also note that half of today's children in Sweden can expect to become 100 years old and there has to be a change in the way the Swedes view their work life.

The point is simply this:  we are seeing and will continue to see more workers aged 60, 70 and older in our workplaces.  We need them.  Work is good for their health and well-being.  They want to work –some for the money but many for social and mental stimulation reasons.   It is time to rethink policies and attitudes that fail to appreciate this changing reality.  

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