A Futurist Past

Salisbury

Salisbury

By Dallas Salisbury, EBRI

At EBRI’s 35th anniversary policy forum last December, it occurred to me that one of the youngest minds in the room happened to belong to the oldest panelist we had invited. Arnold Brown, 87 when he spoke at our forum, was nationally renowned not only for his insightful observations about the future, but his often surprising predictions of how the American labor force—and the employment-based benefits on which they depend—might change in response. How fitting that the forum panel on which he participated was titled “The Road to Tomorrow.”¹

So I was especially saddened to hear of his recent passing, shortly before his 88th birthday. He died surrounded by family, who described him as “brilliant, witty, wise and generous.” Having followed him and his work closely in my own career, I would agree with all that and more.

At a time when news reports warn of the “technological divide” between the young and the old in this country, Brown’s specialty was using hard data to help us understand why and how technology is changing our lives. Ironically for a tech-head, he started out as an English major (he graduated with honors from UCLA), before going on to serve in the Navy.

Arnold Brown

Arnold Brown

His big break on the national stage came when he was vice-chairman of the American Council of Life Insurers, where in 1969 he created ACLI’s Trend Analysis Program. This was the first, and considered among the best, “environmental scanning programs” that focused on long-range business planning and strategy. In 1977, he formed his own company, Weiner, Edrich, Brown, Inc., consultants in strategic planning and the management of change, where many of the biggest companies in the world would become clients. Not surprisingly, he served as board chairman of the World Future Society.

Much of his recent work focused on the trend toward “deskilled workers,” as more and more employers turn to computers, software, and robots to replace both blue-collar and white-collar human employees. He pointed out the many ripple effects that is already having and will have going forward, especially on state and federal social insurance programs that depend on taxes drawn from employment payrolls to survive. As workers are increasingly replaced by robots, Brown asked at the EBRI forum, “Should we require employers of robots to pay Social Security for them?”

Among his other thought-provoking, data-driven points at the EBRI forum:

  • The prolonged recession has masked what he called a “profound transformation of the economy” driven by automation, one that has to do with the very nature of work and jobs as the nation moves into the future. In 2012, he noted, approximately 85 percent of robots were purchased were for manufacturing purposes, and within the next few years 30 percent or more of robots will be for non-manufacturing, white-collar use.
  • Part-time, contract, and temporary workers are becoming the norm worldwide. Brown noted that in France in 2012, 82 percent of the new jobs created were temporary, and in Germany, what are referred to as “mini jobs” (low-paid, short-term jobs) now comprise 20 percent of all jobs in that economy. Another aspect of this job trend: Of the 16-to-25-year-old cohort not currently in school, barely a third (36 percent) have full-time jobs, and a major reason for this is new technology (such as 3-D printing), he said.
  • The upshot is that “The old model of the contract between employer and employee is increasingly obsolete,” Brown said at the EBRI forum, and “more and more, we will need a new model of what the relationship will be between the employer and the employee.” Over the next 35 years, he predicted, there will evolve “an entirely different, unprecedented relationship in the workplace between employers and employees, and what the consequences of that will be are really very profound in terms of what your businesses will be facing.”

Professionally, I greatly admired his acute use of data to make highly informed analysis about the future. Personally, I deeply admired how someone almost in his 90s lived so much in the future.

In Washington, there is naturally great attention given to how federal law (particularly tax law) and regulation affect business and employee benefits. But Arnold Brown’s focus was elsewhere: How the economy—and the underlying technology and skills that drive it—affect not only the business world, but society as a whole, faster and far more powerfully than even government policy.

His keen mind and often accurate predictions will be missed.

Notes

¹ The complete report on the EBRI 35th anniversary policy forum, “Employee Benefits: Today, Tomorrow, and Yesterday,” is published in the July EBRI Issue Brief and is online here.

Home Ownership Trends Among Older Americans

Home ownership peaks at age 65, then falls slowly until the age of 75, when the rate of home ownership declines steadily, according to a new report by EBRI.

The EBRI study finds that owning is the most common housing arrangement for older Americans: At the traditional retirement age of 65, more than 8 in 10 Americans report living in houses they own. After 65, home ownership rates fall and at the age of 90, 6 in 10 Americans report living in their own houses.

“Housing is not only an asset, it also provides housing services,” said Sudipto Banerjee, EBRI research associate and author of the report. “That is why housing wealth does not start to decline until people reach very advanced ages.”

EBRI’s research shows that death of a spouse is the most common factor associated with a housing transition: Almost 42 percent of households that went from owning to renting experienced the death of spouses. The next-most common factor is a drop in household income: 30.5 percent of households that made such transitions also reported drops in household income. Just over 1 in 10 households that shift from owning to renting report nursing-home entry of a family member (self or spouse).

The full report, “Own to Rent Transitions and Changes in Housing Equity for Older Americans,”  is published in the July 2012 EBRI Notes, online here.

The Employee Benefit Research Institute is a private, nonpartisan, nonprofit research institute based in Washington, DC, that focuses on health, savings, retirement, and economic security issues. EBRI does not lobby and does not take policy positions. The work of EBRI is made possible by funding from its members and sponsors, which includes a broad range of public, private, for-profit and nonprofit organizations.

“Better” Pill?

By Nevin Adams, EBRI

Adams

As a growing number of Americans near and enter retirement, concerns about the cost of post-retirement health care expenses loom larger. In fact, worker confidence about their ability to pay for medical expenses after retirement was just half what they expressed about their ability to pay for basic retirement expenses (see EBRI’s 2012 Retirement Confidence Survey).

Little wonder, since a recent EBRI Issue Brief noted that health-related expenses are not only the second-largest component in the budget of older Americans, they are the only component which steadily increases with age (see “Expenditure Patterns of Older Americans, 2001‒2009″).

Recognizing the potential financial impact, recent industry surveys have put a figure on the cost of post-retirement health care expense(1)—a figure above and beyond that of merely living in retirement. EBRI has gone to great lengths to model the major risks to retirement income adequacy—all the way back to the introduction of the EBRI Retirement Savings Projection Model (RSPM)® in 2003, including the incorporation of stochastic health care risks, such as nursing home and home health care costs.(2)

The RSPM has incorporated those expenses because, while those events will not be experienced by all retired households, or experienced to the same extent, when they do occur they can have catastrophic financial consequences for a household’s future retirement income adequacy. Many attempts to model retirement income adequacy either ignore this risk altogether, or just assume that all households purchase long-term care insurance at retirement—the former ignores a significant financial reality, while the latter glosses over reality.

Indeed, a major limitation of using income replacement rates as an accumulation target is that doing so generally fails to take into account these potentially catastrophic costs. How much difference does this make? A recently updated version of the RSPM(3) shows that, with the financial impacts of long-term care (nursing home and home health care costs) modeled, 68 percent of single male Gen Xers are projected to have no financial shortfall in retirement. On the other hand, if those long-term care costs are ignored, fewer than 1 in 10 would be projected to run short of funds in retirement. Similar results were found for single female and married Gen Xers.

The gaps are even more noticeable if you focus only on the situation of individuals with projected shortfalls in excess of $100,000. Ignoring long-term care costs, fewer than 1 percent of single male or married Gen Xers are projected to have shortfalls in excess of $100,000; however when you take those costs into account, approximately 18 percent of single males and 10 percent of families are now in this range, according to the model. The results are even more pronounced for single females, where ignoring those long-term care costs would indicate that fewer than 5 percent are modeled to experience shortfalls of more than $100,000, compared with approximately 34 percent when this reality is factored in.

It’s clear that those long-term care costs can be significant, and can have a dramatic impact on retirement security.

What’s less clear is why projections of retirement income needs and preparedness would continue to overlook them.

Notes

(1) For more information, see “The Impact of Repealing PPACA on Savings Needed for Health Expenses for Persons Eligible for Medicare,” EBRI Notes, August 2011, online here.

(2) The Retirement Security Projection Model® (RSPM) was developed in 2003, and in 2010 it was updated it to incorporate several significant changes, including the impacts of defined benefit plan freezes, automatic enrollment provisions for 401(k) plans, and the recent crises in the financial and housing markets. EBRI has recently updated RSPM to account for changes in financial and real estate market conditions as well as underlying demographic changes and changes in 401(k) participant behavior since January 1, 2010. For more information on the RSPM, check out the May 2012 EBRI Notes, “Retirement Income Adequacy for Boomers and Gen Xers: Evidence from the 2012 EBRI Retirement Security Projection Model,®” online here.

(3) More information about this update will be published in June 2012 EBRI Notes.

Older Americans Remaining in the Work Force

The percentage of older Americans (ages 55 or older) in the work force remained at its recent highs in 2011, according to a new report by EBRI.

The EBRI report, which examines the rates at which older workers participated in the work force before, during, and after the recent economic recession, finds that the labor-force participation rate for those age 55 and older has remained above its level before the economic downturn.

Specifically, the percentage of civilian noninstitutionalized Americans near or at retirement age (age 55 or older) has been rising steadily since 1993, when it stood at 29.4 percent, reaching 40.2 percent in 2010 (it remained at that level in 2011).

The EBRI analysis finds that for those ages 55–64, this trend is almost exclusively due to the increase of women in the work force; the male workforce participation rate is flat to declining.

The EBRI report notes that some older workers continue in the labor force because they want to remain involved, but many others work because they need to.

“This upward trend is not surprising and is likely to continue. Many workers continue to need access to employment-based health insurance, as well as more earning years to save for retirement,” said EBRI’s Craig Copeland, author of the report.

The press release is online here. The full report is published in the February 2012 EBRI Notes,  online here.

Feb-2012 EBRI Issue Brief: Expenditure Patterns of Older Americans

A detailed look confirms that older Americans (50 or above) spend less in retirement, and that home-related expenses remain the top spending category.

But health costs are the second-biggest expense for older Americans, and data show that demographic sub-groups such as singles, blacks, and high school dropouts are outspending their resources in retirement, according to a new report by the nonpartisan Employee Benefit Research Institute (EBRI).

“Home and home-related expenses remain the single largest spending category for older Americans, followed by health care expenses,” said Sudipto Banerjee, research associate with EBRI and author of the new report. “However, health care spending is the only component which steadily increases with age: It captures around 10 percent of the budget for those between 50–64, but increases to about 20 percent for those age 85 and over.”

The EBRI report notes that before retirement, people pay FICA (Social Security) taxes, incur work-related expenses, and set aside money for retirement. But after retirement, most people have different financial obligations, and, as a result, retirees may be able to maintain their level of preretirement well-being with very different income levels.

The full article, “Expenditure Patterns of Older Americans, 2001‒2009,” appears in the February 2012 EBRI Issue Brief, online here.  It documents the income and expenditure patterns of Americans who are retired or close to retirement, using data from the Health and Retirement Study (HRS) and its supplement Consumption and Activities Mail Survey (CAMS). Both surveys are conducted by the Institute for Social Research at the University of Michigan.

The press release is online here.

1 in 5 Older Americans Cutting Back on Health Care to Save Money

More than 20 percent of Americans age 50 or over report saving on health costs by switching to cheaper generic drugs, getting free samples, stopping pills or reducing dosages, and nearly as many skip or postpone doctor appointments for the same reason, according a new report by EBRI.

The data suggest that spending by those near or in retirement declines to match income, even when it means giving up real needs.

“We know that consumption tends to fall with age, but it’s difficult to measure whether falling consumption is voluntary,” said Sudipto Banerjee of EBRI, author of the study. “However, we found evidence that a significant segment of the older population may be making spending adjustments to their health care in order to save money.”

The study is based on data from the 2009 Internet Survey of the Health and Retirement Study (HRS). The full report is published in the January 2012 EBRI Notes, “Spending Adjustments Made By Older Americans to Save Money,” online at here.

Higher Percentage of Older Workers in the Work Force in 2010

The February 2011 EBRI Notes article shows there was a higher percentage of people age 55 and older (40.2 percent) in the work force in 2010—the highest level in 35 years—even after the 2008–2009 recession.

The analysis is based on the U.S. Census Bureau’s data on labor-force participation among Americans age 55 and older, and focuses on what happened to trends after the economic recession that started in late 2007–early 2008. The first section uses annualized data on labor-force participation from the Current Population Survey (CPS), while the second section uses data from the March 2010 Supplement to the CPS.

The study found that the percentage of Americans age 55 or older who were in the labor force declined from 34.6 percent in 1975 to 29.4 percent in 1993. But since then, the overall labor-force participation rate has steadily increased, reaching 40.2 percent in 2010.

Additionally, for workers near retirement age (55–64), the labor-participation rate increased almost solely because of the increase of women in the work force, as the rate for men was flat to declining. However, the rates for men and women age 65 and older increased.

EBRI also found that education is a big factor for older individuals staying in the work force: Those with higher levels of education are more likely to stay at work than those with lower levels of education.

The full report is online here.  The press release is online here.