Posted 01/16/2009 - 07:54:05am by David Bank
President Obama signing his first proclamation, declaring a national day of renewal and reconciliation. Photo by Riley/Getty.
President Obama and his team are looking for smart solutions that deliver not only budget savings but also better outcomes, not only fiscal responsibility, but also economic recovery and national renewal. Obama should look to tens of millions of baby boomers who want to extend their working lives with encore careers that answer his call for "a new era of responsibility."
Obama need only step in front of the encore careers parade to turn a promising trend into major a social institution that can reduce the nation's budget deficits, restore individuals' personal finances, and unleash a tremendous pool of talent on some of our biggest challenges such as education, climate change, and global poverty and health.
Simply removing outdated obstacles will go a long way toward realizing this win-win-win of fiscal responsibility, retirement security and social renewal. Going further, a set of modest investments to speed individuals' transitions to their encore careers could significantly reduce Social Security's long-term deficit, which has reached a staggering $14 trillion.
It's true that Social Security is "the easy part." The unfunded future liabilities of Medicare is a crushing $85 trillion and reducing that shortfall require profound changes in the entire health care payment and delivery system. But tackling the $13.6 trillion gap between promised Social Security benefits and what current taxes will cover -- technically the “infinite horizon discounted value” -- would count as a promising start.
The logic is straightforward. If Americans worked five years longer than they currently do, their continued payroll and income tax payments would more than wipe out the projected Social Security shortfall in 2045, according to a 2006 study by researchers at the Urban Institute, who used a sophisticated computer model to crunch the array of variables. People who work longer produce goods and services, bolster economic growth and reduce budget deficits by deferring their Social Security claims. Importantly, they also pay taxes on their increased income, further reducing deficits.
And what’s good for the nation’s fiscal health is good for individuals’ own financial health. People earn more income and reduce withdrawals from their savings, allowing their assets to grow and increasing their eventual Social Security benefits. “The key point about working longer is that you don’t touch your 401(k) or Social Security until later, so those sources will give you a higher benefit,” says Steven Sass, coauthor of Working Longer: The Solution to the Retirement Income Challenge (Brookings Institution Press, 2008) and associate director of the Boston College Center for Retirement Research. Deferring the drawdown of retirement assets by four years increases a person’s eventual monthly income – for life – by 33 percent, Sass says; an eight-year delay can produce a 75 percent monthly bonus.
So how do we get people to work longer? One way, of course, is to cut their benefits so they can’t afford to retire. Raising the eligibility age for Social Security effectively amounts to such a cut in benefits. Reducing retiree health benefits, as many companies are doing, has the effect of squeezing a few more years of labor out of strapped and scared employees. The same goes for cutting employer-match contributions into workers’ 401(k) accounts.
But punishing hard-working Americans is not the right approach, and is not necessary. Many people actually want to work longer than their parents did, and even longer than they expected, for the continued engagement and connection as well as the continued income. Even more promising, a slew of surveys show that as many as half of all baby boomers want to “give back” in their encore careers, in schools, community organizations, environmental efforts, and troubled spots at home and abroad. These major structural changes in working lives have been building for decades; the economic crisis, which has wrecked many retirement plans, is accelerating this shift and increasing its urgency.
Obama can put both the "social" and "security" back into Social Security. In short, Social + Security = Encore Careers.
An “Encore Careers for Recovery and Renewal” plan should include at least three elements:
- Simple regulatory reforms to remove outmoded obstacles and create low-cost but high-impact incentives for encore careers. With total annual Social Security benefits of nearly $600 billion, little tweaks can yield big results.
- Modest investments in a slate of encore initiatives -- practical, effective projects that would deliverable measurable results, such as reductions in the high school drop-out rate in America’s cities and increases in global vaccination rates for childhood diseases. And
- Presidential leadership to make the new stage of work so meaningful and rewarding that it becomes the new definition of success in the second half of life. Rather than asking, “What’s your handicap?” friends will want to know, “What are you doing in your encore career?”
Simple reforms. Obama has already embraced a temporary suspension of mandatory annual withdrawals from Individual Retirement Accounts and 401(k)s. Currently, investors when they reach 70-1/2 years old, are required to withdraw at least 4 percent of their assets each year. Suspending or postponing such required withdrawals leaves the assets to accumulate longer, making them (one hopes) worth more in true old age. Thus, suspension of the withdrawals is an incentive for continued work.
By the same logic, Obama should embrace a significant extension of Social Security’s “delayed retirement credit.” Currently, the credit increases individuals’ monthly check – for life – by up to 8 percent for each year they postpone their claims for benefits beyond the “normal” retirement age. A study by the Federal Reserve found that the bonus indeed spurs people to work longer, but its effectiveness is limited because current law caps the bonus at age 70.
The Incentives for Older Workers Act, introduced last year by , Senators Herb Kohl (D-Wisc.), Gordon H. Smith (R-Ore.) and Kent Conrad (D-N.D.) would extend that limit to age 72. But since the incentive is budget-neutral – actuarially speaking – there is no reason not to extend it much further, to 75 or 78, or even indefinitely. That would enable people who want to and are able to work to continue to contribute while they accumulate – tax-free and risk-free – a retirement benefit substantial enough to pay their bills
Obama could also embrace the Kohl-Smith-Conrad proposal to remove the penalty for continued work for those who claim their Social Security benefits early. Currently, those who claim their Social Security checks before they reach the “normal retirement age” face penalties if they earn more than $13,560 a year. Since nearly half of all Americans claim their benefits as soon as they’re eligible at age 62, that’s a significant disincentive to work. We should be encouraging Social Security recipients to continue to work, not discouraging them.
It may seem contradictory to both encourage individuals to delay their Social Security benefits and to accelerate them, but the two policies are actually complementary. With the work penalty removed, early Social Security benefits could serve as a cushion to help an individual make the transition to an encore career, or give that individual the freedom to take a higher-satisfaction but lower-paid job.
One inexpensive way to encourage people to apply their talents in areas like education, health care and public safety would be to offer Social Security recipients the chance to “top up” their benefit payments in return for service in high-need areas. That is, a 62-year-old could treat early Social Security benefits as a form of “encore fellowship,” financing the transition to a social-purpose encore career. After some years of service, he or she would be eligible to boost his or her monthly benefit check back up to the normal, non-discounted level. The beauty part, as Ross Perot might say, is that there’s no upfront cost to the government for this incentive – the increased benefits are only disbursed after the service has been rendered.
There are already models for government incentives to take on urgent challenges. The National and Community Service Act declares “Throughout the United States, there are pressing unmet human, educational, environmental and public safety needs,” and that “Americans desire to affirm common responsibilities and shared values” to join together to solve these problems. And the Education for Public Service Act reduces federal student loans – and forgives them entirely after 10 years – for those who work in any of a list of public service occupations.
Clever policy wonks could build upon other innovative proposals, including the tax-advantaged Lifelong Learning Accounts proposed by then-Rep., now Chief of Staff Rahm Emanuel (and already being offered by IBM) and proposals to exempt older workers from payroll taxes or even, as New York Times columnist Tom Friedman proposes, in the case of teachers, from income tax itself.
Encore initiatives. Obama’s encore agenda should take the form of practical, effective, intergenerational projects that deliver measurable results against high-priority problems. Luckily, Obama is already planning to do this as part of his broader economic recovery program; calling on those seeking encore careers to be integral to efforts to move toward energy independence and revive our school systems is a virtual no-brainer.
“Encore fellowships” are central to both the Kennedy-Hatch Serve America bill, which Obama has already pledged to sign, and the Dodd-Cochran Encore Service Act. Both provide modest subsidies for programs that, in addition to creating entry-level positions for young people, foster encore-level positions for those who have finished their midlife careers and are looking for new challenges. In the private sector, Hewlett-Packard, Agilent and other corporations also are starting to provide such fellowships to help their retirees and near-retirees launch their encores.
There are no shortages of appropriate challenges. In their recent report, “More to Give,” Harris Wofford, John Bridgeland and Robert Putnam call for 100,000 adult mentors to swarm into the nation’s 2,000 most notorious “dropout factories” and, one by one, put all of our kids on the track to success. Hugh Price, the former head of the National Urban League and now a senior fellow at the Brookings Institution, calls for retired physicians and health care workers to join a “crusade” to combat childhood obesity, working through YMCAs and YWCAs, Boys and Girls Clubs, churches and community centers to establish regular contact with children and their families and get them on a program of fitness and healthy eating, weight control and stress management, cholesterol, blood sugar and blood pressure controls and regular medical care and prevention. The Clinton Foundation is looking for hundreds of business-savvy practitioners – both young and old – to ramp up HIV/AIDS treatment in the developing world.
Call to action. The final part of Obama’s encore initiative requires literally no funding. Boomers would respond enthusiastically to a call to action from the president to leave their children and grandchildren a better world.
Obama could even call on those who are more comfortable to redirect their Social Security payments toward urgent needs – and let them direct their checks to charities, tax free - without undercutting Social Security’s egalitarian premise.
That’s beginning to happen even without the tax incentive. In Denver, Jerry Conover, a successful trial lawyer, decided his Social Security checks were nice but not necessary. With a few friends, he started depositing his Social Security checks into Hope for Generations, directing hundreds of thousands of dollars each year to children’s education and health needs.
Obama has called for “all hands on deck” to respond to the national emergency. An “Encore Careers for Recovery and Renewal” plan would mobilize the experienced Americans he needs to answer his call, issued in his first proclamation as president, for "all of our citizens to serve one another and the common purpose of remaking this nation for our new century."
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Dangers of 'Sky is Falling' rhetoric
Eric Kingson, a professor of social work and public administration at Syracuse University, offered this email response to "Win-Win-Win for Obama: Encore Careers for Recovery and Renewal," and agreed to let us post it here:
I am a colleague who values what you are accomplishing and the ideas and civic engagement you are advancing. However, in reading your article, "Win-Win-Win for Obama: Encore Careers for Recovery and Renewal," I was quite discouraged by the way the discussion is framed. The article feeds into the entitlement crisis mentality and also overlooks the diversity of the baby boom, potentially undermining the interest of low income and/or functionally disabled boomers.
I think the memo/article includes a number of ideas worth careful exploration (i.e., extending the DRC (delayed retirement credit) to older ages; "topping off" SS benefits in return for service in a high-need area). And I could not agree more that we should be encouraging such careers.
However, the argument builds on and reinforces the "sky is falling" entitlement framing of social insurance policy.
In terms of the misframing... It may be functional, with regard to catching people's attention, to use "scare tactics," but it plays into the hands of those seeking to substantially change Social Security to talk about "the $13.6 trillion gap between promised Social Security benefits and what current taxes will cover -- technically the "infinite horizon discounted value." Fact is, the financing problems of social security are relatively modest, as you acknowledge. Minor changes can address this problem. There is a roughly 14 percent shortfall projected over the 75 year estimating period. Benefits, as you know, under the most commonly accepted assumptions are fully payable through about 2040 and after that there is a roughly 25 cents shortfall on every dollar promised.
In terms of Medicare, there really is no dealing with the substantial projected shortfall without addressing cost and coverage issues of the entire US health care system. Medicare must be dealt with within the context of health care reform. Lumping Medicare financing problems together with Social Security and Medicaid feeds into the strategy of those wishing to talk about an "entitlement" crisis. Language matters. Social Security and Medicare are two of the most successful and popular policies and so it is difficult to mount an attack on these programs. Hence the use of the term "entitlements," a term emphasized by those wanting to substantially alter SS & M.
The article largely ignores the diversity of the so-called baby boom generation, in ways that are disadvantageous to low income and/or functionally disabled "boomers." As you know the baby boom spans 19 years (including with Hillary Clinton and Barack Obama serving as its "bookends." There are now about 78 million people (76 million born into it plus about 11 million new Americans minus 9 million deaths). Some are fantastically rich, others very poor, some healthy and some quite ill, etc.
I like some of the incentives you propose, but it is important to recognize two things. First, some people reach ages 60, 62 or whatever and are quite limited by health or other factors in terms of what they can do. They are not in as good a position as someone like me (a healthy 62 year old professor with SS and some reasonable pensions savings) to to continue their employment or shift into encore careers. The financial incentives you are proposing will be disproportionally beneficial to better off boomers like me.
(Parenthetically, while I like the topping off idea, I do not think it is cost neutral as you imply.) But the key thing that troubles me here is what comes across as a class-biased assumption that all older persons are able to participate in encore careers.
Again, know that this comes from a friend, who thinks the promotion of encore careers is extremely important, but does not want to see it done in a way that advances the arguments of those seeking to define Social Security and Medicare solely as long-term budget problems.
As the economic crisis unfolds, it is increasingly clear, that Social Security remain the most secure and efficient parts of the nation's retirement and health insurance systems. Their value and benefits are undiminished; nor are they dependent on current employment. Indeed, they are the foundation that will free many of us up to make new and different contributions in our older years.
Comments well-taken about
Comments well-taken about not overplaying the fiscal crisis, but I still think the long-term shortfall numbers illustrate the scale of the problem to be solved -- that is, the opportunity.
The opportunity is to use Social Security reform to drive social renewal as well as fiscal responsibility. The new social contract is usually ignored in favor of punitive measures targeted solely at the fiscal issues.
How can we take advantage of the momentum around the current trends of working longer and giving back and what we're calling encore careers? What is the set of incentives and reforms that help people who can do what they already want to do, and on a scale big enough to make a dent in both some major social challenges (education, etc.) and the long-term deficit?
These kind of voluntary, aspirational, collaborative proposals are exactly the opposite of the conventional wisdom policy proposals that insist on punitive changes that would indeed disproportionately hit those who for whatever reason cannot work longer.
Whatever the real number, the long term shortfall of Social Security is big enough that policy reforms that can reduce it while also unleasing a windfall of human talent on major social challenges would certainly be worthy of a modest investment.
David Bank
Editor, Encore.org
Encore Program in or near west orange NJ
Can you suggest how or in what area I can get involved with Encore programs I am retired and anxious to do some meaningfull work.
Lenny at schonlen@aol.com
Win-Win for Obama
Many, many people are already delaying retirement (if they can hang on to their jobs)because they need the money and/or the supplementary health benefits. Encore Career is a polite euphamism for needing the added income and secondarily, to applying their experience to our economy.
I wonder where the Encore jobs will come from when we read every day of thousands more breadwinners losing their jobs.
As for Social Security future funding, it can be easily resolved by lifting the cap on payroll deductions for Social Security and tax every dollar of wages.
If we look at Medicare, which Congress will certainly do, we have the opportunity to make it better, more responsive, less complex while, at the same time, saving tens of billions of dollars.
Medicare Part D
We needed a prescription drug benefit. What we got was a privatized nightmare of choices with excessive benefits going to drug companies, insurance companies and middlemen.
There were 28 million people enrolled in Part D. The average savings according to CMS was $1,200 per person per year. This means that about $31 billion was paid in benefits. But, the total cost of Part D was $52.2 billion.If the structure remains the same, the total 2017 year cost is projected to be $139.5 billion.1
Contrast this with a Medicare program (if we had one) in which Medicare negotiated all of the drug prices we would save $21.2 billion a year. That is just the beginning of the savings. Drug prices in the Veterans Administration program are 48% less than in the Part D program. The difference is that the VA negotiates for lower drug prices. We can have similar savings in a Medicare drug program that negotiates for lower prices and uses the savings to improve benefits.
Medicare Advantage Programs
Another place to save is reducing subsidies to the private Medicare Advantage programs to match the cost of benefits provided under original Medicare. Currently, each person enrolled in a Medicare Advantage program costs $1,100 more than under traditional Medicare. With 10 million enrolled in the “Advantage” programs, the reduction in this subsidy could save $10.1 billion annually. And, recent studies have indicated that there is no appreciable difference in quality of care provided in the “Advantage” programs. They just cost more. The more disturbing thing is that these increased costs are impacting the Medicare Trust Fund which is there to pay for benefits of future Medicare enrollees.
Bottom Line: No Privatization and Understandable Choice of Providers
If we eliminate the privatization of Medicare programs we could save over $31.3 billion a year. And we need understandable Medicare programs that give beneficiaries a choice of doctors and hospitals instead of having to choose from among an array of complex plans
Robert ...Agreed Re: Win-Win for Obama
I agree with your conclusions. The original article is misleading, and exaggerates the risk to SSA benefits. I am always suspicious of large numbers thrown around with no context. Haven't we had enough misinformation these past 8 years?
According to the Trustees report, there is no projected insolvency in 2017, but some of the securities will have to be cashed in to continue full benefits until 2042 when, if no adjustments are made to tax or retirement age (or if GDP growth does not exceed the low growth projections) benefits may have to minimally be reduced. Medicare is another matter, but would be significantly more manageable if it were not a for profit business. Of course if we continue our current political-economic ways, we'll have to start worrying about the real economy, and our day to day survival.
As to encore careers, and working longer .. I'm for it!
Here's a quote from the 2008 SSA and Medicare Trustees report:
"The projected cost outlook for Social Security and Medicare has improved relative to that described in last year's report. In 2007, the combined cost of the Social Security and Medicare programs represented about 7.5 percent of GDP. Social Security outgo amounted to 4.3 percent of GDP in 2007 and is projected to increase to 5.8 percent of GDP in 2082 (compared to 6.3 percent in 2081 last year). Medicare's cost was smaller in 2007—3.2 percent of GDP— but is projected to surpass the cost of Social Security in 2028, growing to 10.8 percent of GDP in 2082 (compared to 11.3 percent in 2081 last year) when it will be 85 percent larger than Social Security's cost. In 2082, the combined cost of the programs would represent 16.6 percent of GDP. As a point of comparison, in 2007 all Federal receipts amounted to 18.8 percent of GDP. "