Policy Briefs: The Retirement Project Discussion Papers

High out-of-pocket health care costs may have serious repercussions for older people and their families. This paper examines the impact of health problems at older ages on out-of-pocket health care spending and other types of expenditures. The results show that medical conditions increase health spending, particularly for households ages 51 to 64, but do not generally reduce nonhealth spending. Health conditions do, however, reduce nonhealth spending for low-income households ages 51 to 64, suggesting that holes in the health safety net before the Medicare eligibility age force some low-income people to lower their living standards to cover medical expenses.

Over the last three decades there has been a steady shift from DB to DC pensions. The Pension Protection Act of 2006 may accelerate this trend. This paper examines the impact of an accelerated freeze on the retirement income of boomers. Simulations suggest that such a scenario would produce more losers than winners and reduce average retirement incomes. Income changes will be substantial among high-income workers, who have the highest DB coverage and pension incomes. Late boomers will experience the largest impacts, as they lose their high DB accrual years and have inadequate time to accumulate DC wealth before retirement.

This paper estimates the ratio of post- to pre-retirement consumption to explore how well boomers are prepared for retirement. I show that some of the poorest households are best prepared because they can maintain consumption by relying almost solely on Social Security while many of the most affluent households are poorly prepared because they will experience a decline in consumption upon retiring. Nonetheless, affluent households will be able to maintain a consumption level many times that of poor households. The paper discusses whether equalization of pre- and post-retirement consumption provides a useful adequacy yardstick at all income levels.

Boomers will probably want to work longer than earlier cohorts, but their continued work requires that employers hire and retain them. Employers value older workers for their maturity, experience and work ethic, but worry about out of date skills and high costs. Slower overall labor supply growth will increase demand for older workers and occupations with higher shares of older workers will increase modestly as a share of all jobs. Future jobs will require less physical demands and more cognitive and interpersonal skills, trends that favor educated older workers, but job opportunities for less educated older workers may remain limited.

Growing fiscal pressures and increasing life expectancy have prompted calls to raise retirement ages. Some fear this change might harm long-career, lower-wage workers. Tying retirement benefit eligibility to years of service might protect low-wage workers who start their careers early. But higher disability rates and greater employment volatility could offset lower-wage workers’ early labor force starts. Using survey data matched to administrative records, we describe how work histories vary by gender, education, and other characteristics. We find that years of service are not likely to effectively protect the lowest-wage workers, as those with the least education also work the least.

Rising health care costs threaten financial security at older ages and lead many older Americans to delay retirement. Continued work reduces the risk of high out-of-pocket health care costs for workers receiving health benefits from their employers. Working longer also increases retirement incomes, making health care costs more affordable. This report shows that men with very high expected health care costs after age 65 retire 11 months later than those with very low health care costs. For women, the difference is 12 months.

This paper uses data from the 2004 Health and Retirement Study to demonstrate how the poverty rate of adults 65 and older changes using alternative resource and threshold measures. Results show that alternative poverty measures that account for health spending produce higher poverty rates than the official measure, even those that include the value of housing and financial assets. Poverty remains concentrated among singles (disproportionately women), blacks and Hispanics, and adults 85 and older regardless of how it is measured because these populations have relatively little housing equity or financial assets.

The shifting pension landscape raises questions about the financial security of future retirees. About one-half of private-sector workers are not covered by employer-sponsored pension plans on their current job. Many private-sector employers have replaced traditional pensions with 401(k)-type plans, which protect benefits for workers who change jobs frequently but expose participants to investment risks. This primer describes pensions, workers with coverage, and related policy issues.

About one-quarter of workers age 51 to 55 in 1992 developed health-related work limitations and about one-fifth were laid off from their jobs before age 62. Although late-career health and employment shocks often derail retirement savings plans, Social Security’s disability insurance, spouse and survivor benefits, and progressive benefit formula provide important protections. In fact, health shocks increase Social Security's lifetime value, primarily because the system’s disability insurance allows some disabled workers to collect benefits before age 62. However, if the system’s disability insurance program did not exist, the onset of health-related work limitations would substantially reduce Social Security wealth.

As the nation ages, older adults' volunteer activities are becoming increasingly important This study uses longitudinal data from a nationally representative survey to examine entries into and exits from volunteer activities by adults age 55 to 65. The findings reveal considerable persistence among both volunteers and nonvolunteers; however, older adults are more likely to stop volunteering than to start. Duration and intensity of volunteering, as well as marriage to a volunteer, are strong predictors of continued volunteer activities. And, the time spent away from volunteer activities, as well as marriage to a nonvolunteer decreases the odds of volunteer starts.