As the leading edge of the baby boom generation approaches 60, growing evidence suggests that many may want to work beyond traditional retirement ages. Longer work lives may be desirable for a combination of reasons, including financial need, robust healt ... [more]

As the leading edge of the baby boom generation approaches 60, growing evidence suggests that many may want to work beyond traditional retirement ages. Longer work lives may be desirable for a combination of reasons, including financial need, robust health, and the desire to stay active, productive, and engaged. Financial need may be the single most important incentive to work longer. Even at today's level of Social Security benefits, many older Americans need to work as they have little income from other sources. Indeed, one-third of those over 65 rely on Social Security for virtually all of their income. The prescribed solution was to radically transform the traditional pay-as-you-go structure to a system based on personal retirement accounts. The Box on page two describes the main features of the current system. Nearly 25 years after the reform, it is possible to assess the Chilean experience. A disproportionate share of these Social Security dependent beneficiaries are women. In addition, as baby boomers begin to retire, the need for income will become even more important for two reasons. First, Social Security benefits are expected to replace a smaller share of individuals' pre-retirement income due to changes under current law, such as the rise in the full benefits retirement age, and the need to solve the program's long-term financial shortfall. Second, 401(k) plans have replaced traditional defined benefit plans as the dominant pension vehicle, and benefits from 401(k)s are much less certain than those from traditional plans. Fortunately, older Americans are now more capable of working at later ages than in years past. Several studies suggest that today's 70 year olds are comparable in health and mental function to 65 year olds from 30 years ago. In addition to the monetary rewards, work also offers health and psychological benefits. Working in later ages may contribute to an older person's mental acuity and provide a sense of usefulness. Indeed, when surveyed, many people say they wish to continue working at least part time into later ages as a bridge to retirement. [less]