Is Retirement Retired?

Instead of a recognition of a life devoted to a single firm, pensions are now the source of strife between management and workers.

I remember when people would count down the number of days before they’d be able to empty their file cabinets, clean out their desks, and tell their colleagues not to include them on newly formed committees: they were about to begin earning a thoroughly deserved reward for years of dutiful employment. They were about to become pensioners, finally able to do whatever they wanted with their time.

But that was before the more philanthropic impulses of unionized industry were challenged by the spirit of the gig economy. Now, if a pension is received at all, it may provide for not much more than a careful standard of living. Today’s workers are more likely than were their parents to have to augment a pension that can barely cover their bills. Instead of a recognition of a life devoted to a single firm, the pension has become an outcome of contentious debate between management and workers.

Money troubles, often the lot of occupants of working-class society, tend to be lifelong. The lives of those afflicted by such troubles are likely to first encounter them in the prenatal months and have lives in which they weigh heavily in the years that follow. Close, potentially sustaining relationships—including living one’s early life with a relatively unchanging and mutually devoted family—can offset even high genetic risk, but here as elsewhere in American society the poor do poorly. Social advantage brings with it good nutrition and attentive medical care and, in consequence, comparative freedom from disabilities of growth and learning. In contrast, a childhood on the lower rungs of the social ladder can be as dangerous to health as a serious smoking habit (and, indeed, the two are correlated).

Adolescence is an unusual time of life in that the correlation between a family’s income and the well-being of its adolescent children is small. On the other hand, early adoption of adult responsibilities (as by early entrance into the labor force) increases the likelihood of stress-linked illness. Though those dealing with poverty form initial familial relationships early, by their 20s they are more likely than those with more options to have experienced widowhood or divorce and so be on their own.

Differences in the quality of life increase over time. Inequality is self-reinforcing: trouble leads to trouble. As life expectancies regularly reach the mid-80s and beyond, people become more vulnerable to misuse. Nursing homes can be of dubious quality, while the competition for housing and health care is likely to become more severe. Pension plans based on the assumption that most people will die before reaching their 80s will prove to be inadequately funded as people live longer. In Golden Years?, Deborah Carr reports that “in 1900, just 4 percent of the U.S. population was age sixty-five and older. That proportion … is expected to reach 21 percent by 2030.” More old people will rely on social security, augmented by marginally adequate subsidies for housing and food.

Why so many old people? Carr proposes that it’s because life has gotten safer. People of every age have a better chance of living to an older age than did their parents. In 1900, a 65-year-old male had a one-in-two chance of living to be 73 and a 65-year-old female of making it to 87. Today, the Social Security Administration reports, a 65-year-old man can expect to live, on average, till 83; a 65-year-old woman, till 85.

Income turns out to be a crucial determinant of longevity. The epidemiologist Sandro Galea reports that poverty may be more deadly, in terms of numbers of deaths caused, than automobile accidents. Men in the bottom 1 percent of the income distribution die 15 years earlier than men in the top 1 percent, and women in the bottom 1 percent die 10 years earlier than women in the top 1 percent. We may not know exactly why income is so effective at keeping us alive, but it is unquestionably effective.

Differences in the quality of life increase over time. Inequality is self-reinforcing: trouble leads to trouble.

Managers have reacted to the greater longevity of American workers—and so to their firms’ longer requirement for pension payments—by trying to limit their firms’ obligations. One approach they have taken has been to shift from pension plans that guarantee a defined benefit to plans that guarantee only an amount based on contributions made by the worker and matched, more or less, by the firm. There are many variations of each type of plan, but essentially a defined-contribution plan leaves to the worker what to invest in and how much to invest, while a defined-benefit plan leaves investment decisions to the firm while guaranteeing the worker a pension of an amount based on such factors as length of employment and final salary. In defined-benefit plans, the risk that the pension fund will not cover the firm’s obligation is the firm’s; in defined-contribution plans, the risk of the pension fund not being enough to pay bills is determined by how much the worker contributed and in what it was invested.

Firms have moved to the defined-contribution form because it gives them more control over their pension obligations. All that’s required is to divide up how much is in the pension fund by the number of retiring workers, then to spread the obligation of the firm to each of them over their likely length of life. Workers, ordinarily, would prefer to know just how much they can count on receiving.

In Downhill from Here, Katherine S. Newman describes developments that have led to pensions being reduced or forgone, sometimes because the workers come to believe that an alternative, which might be a reduction in pension amount or the loss of coverage for health care, would be worse. For example, Holland Freight, a large trucking firm, asked workers to accept wage cuts in exchange for more generous retirement packages.

Yet such worker givebacks are not always enough. Not only are older workers receiving pension checks longer, but firms have been encouraged by investment houses to make overly optimistic estimates of the returns they could expect from their investments of pension funds. Then, when the time comes for pensions to be paid, management may worry about their ability to make good on them.

Some large firms have seen in bankruptcy proceedings a solution to the dilemmas of obligations that outstripped their available funds. A few firms have looked to bankruptcy for a way to spin off pension obligations. Verizon, for one, spun off a subsidiary, the Yellow Pages, into another firm that promptly went into bankruptcy because—as was no surprise to the leaders of the new firm—the Yellow Pages was dependent for income on the dying business of phone directories. United Airlines, another firm that went into bankruptcy, sweetened the deal for its workers by giving them half the company’s stock. But when the business climate changed and United Airlines returned to profitability, the company—having already reduced the pensions in question—won the right to disclaim its pension obligations entirely, on the grounds that without doing so the firm might not be able to survive another downturn.


Against Human Capital

By Hadas Weiss

Carr provides a brief discussion of dying in the United States. Here, too, inequality is found to be linked to aging. More Americans would like to die at home, avoiding hospitalization and intensive care at the end of their lives. This common desire is more easily realized when income and savings make it possible for a dying person to have 24/7 care (often provided by recent immigrants). At a lower level of wealth, there is more often a terminal illness that will lead to protracted hospitalization, though it may take time to unfold. There may also be organ failure that can’t be reversed, or simply ever-increasing frailty. Each of these can justify hospitalization, along with loss of autonomy.

Nor is it always the case that those who have well-funded retirements are without concern. Many of them have been deeply invested in their work and must now worry about replacing it with activities that are equally meaningful. Not only professionals but also high-level decision makers in business and government can feel that their lives have gone flat in retirement. The authors whose books are reviewed here are in agreement that, as has been true throughout history, we need to devise social policies that will ameliorate problems we are just beginning to recognize.


This article was commissioned by Michèle Lamont. icon

Featured image: Good Life (2016). Photograph by Sam Wheeler / Unsplash