Reducing Consumption of the Elderly

A first policy option would be to reduce people’s consumption when old, relative to their earlier years. If household decisions were well informed and made independently, this might happen naturally as people weigh the relative priority of consumption when young versus old. A reweighting of priorities could lead to a reduction in consumption in older years, or to working longer, or to saving more in younger years (thereby reducing consumption in those years). So households themselves might change their life-cycle consumption patterns if they fully anticipate the need to build a nest egg to sustain them over a longer retirement period. A more complex problem has to do with government transfer programs, where adjustments in taxes and benefits paid must take place via the political process. To date it has proven quite difficult for policy makers to achieve political consensus around the question of how to restore the nation’s Social Security and Medicare systems to solvency. Yet doing so is essential if the nation is to provide an institutional context in which households can make retirement plans.

Working Longer

Age at retirement is central to population aging and its economic consequences. Raising retirement ages is one key alternative to reducing the consumption of leisure and enhancing people’s ability to stretch their assets over their lifetimes. The average retirement age for men declined substantially in the United States throughout most of the twentieth century. Although this trend stopped in the early 1990s and then reversed, men still retire at a much younger age than in the past, despite their better health and much longer life. Women’s average age at retirement has moved parallel to men’s over recent decades, but it stabilized and began to rise somewhat later. The committee foresees a continued rise in the labor force participation rate of older Americans. Based on evidence reviewed in Chapter 5, the committee concludes that the potential for work is much greater than is reflected by the proportions of elderly actually working.

Health Status and Retirement

On average, Americans today are retiring in much better health than was true three decades ago (Chapter 5). A substantial proportion of older persons who are not working have no major impairment to their health status. This suggests that, if people choose to work longer for either economic reasons or because of personal preferences, their health status will mostly not be an obstacle. Further, changes in job mix coupled with a general de-

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