September 2008

 Social Security Advisory Board

 Working for

Retirement Security
Social Security Advisory Board

Sylvester J. Schieber, Chairman

Dana K. Bilyeu

Jeffrey R. Brown

Dorcas R. Hardy

Marsha Rose Katz

Barbara B. Kennelly

Mark J. Warshawsky

Social Security Advisory Board

An independent, bipartisan Board created by the Congress and appointed by the President and 

the Congress to advise the President, the Congress, and the Commissioner of Social Security on 

matters related to the Social Security and Supplemental Security Income programs. 
Working for Retirement Security

Social Security Advisory Board

September 2008
Message From The Board

The Social Security Advisory Board was created 

by Congress through the Social Security Independence and Program Improvements Act of 1994. In 

that Act, Congress gave several directives to the 

Board including the task of analyzing the nation’s 

retirement and disability systems and making recommendations with respect to how the Old-age, 

Survivors, and Disability Insurance program and 

Supplemental Security Income program, supported 

by other public and private systems, can most effectively assure economic security.

In this report we focus on the need to assure adequate income in retirement by addressing when 

to withdraw from the workforce and when to begin to receive Social Security retirement benefits. 

It has been nearly 75 years since President Franklin Roosevelt signed The Social Security Act of 1935 

and the United States has undergone significant 

changes. Decades of economic growth and prosperity coupled with improved health status has meant 

that Americans are living longer and spending a 

greater portion of their lives in retirement. Because of longer life spans, low savings rates, and the 

growth of health care costs, retirement is becoming 

increasingly expensive for individuals and families. 

Moreover, as the nation’s population ages, and each 

worker must support a larger number of retirees, 

the cost of Social Security will increase. We believe 

that encouraging workers to extend their working 

lives can address both of these issues.

We are very aware that the decision to retire or 

withdraw from the workforce is not always voluntary. Nothing in this report should be seen to contradict our strong belief that our nation’s system of 

providing economic security to those who cannot 

work should be maintained and even strengthened. 

Nonetheless, we believe that there are substantial 

benefits to individuals and to the nation of extending the working lives of most Americans.

Throughout the development of this report the 

Board elicited ideas and perspectives from a wide 

range of experts so that we may better understand 

the influences that shape personal decisions as well 

as national policy.

Sylvester J. Schieber, Chairman

Dorcas R. Hardy 

Dana K. Bilyeu 

Jeffrey R. Brown

Marsha Rose Katz 

Mark J. Warshawsky
Table of Contents 

Executive Summary 1

Introduction 3

I. Rising Cost of Retirement 5

II. Managing the Cost of Retirement 13

III. Influences on a Changing Retirement Landscape 17

IV. Guiding Principles for Future Policy Considerations 27

Appendix 1: Summary of a Public Forum on Policies to Help Extend 

the Working Life of Older Americans Held Friday, January 18, 2008 29

Appendix 2: What Some Other Countries are Doing 33

Social Security Advisory Board 35
Working for Retirement Security 1

Executive Summary

Longer life spans and other demographic changes are making it increasingly expensive to finance an adequate retirement income. One way to reduce this burden is for older workers to participate longer in the 

workforce. Policy makers should consider ways to remove barriers to continued work at older ages with the 

objective of improving the economic security of American workers in their retirement years.

Over the past 50 years, Americans have enjoyed 

steadily increasing life spans, and they have also been 

retiring earlier. The combined effect of these two 

trends is that the average American worker today can 

now be expected to spend 50 percent more time in retirement than a similar worker 50 years ago. Experts 

project life spans will continue to increase.

As a result, the amount of income that must be 

put aside to fund workers’ retirement must grow. 

Funding retirement is becoming more expensive 

for individual workers and for our public retirement systems, and the expense is growing to the 

point where it is putting strains on the ability of 

workers and society to bear it. Under our retirement systems that depend on workers and/or firms 

putting aside earnings during the working years to 

fund retirement income, the period of accumulation is getting shorter while the payout period is 

getting longer. Under our Social Security system, 

which uses the contributions of today’s workers to 

pay today’s retirees, the declining number of workers relative to retirees raises costs directly.

Although the need to set aside income has 

grown, many workers have not been accumulating 

enough savings in their personal or retirement accounts. Rapidly rising health care costs also consume a growing share of earnings and retirement 

incomes. Experts project these costs will continue 

to rise faster than national income. Social Security 

benefits, the major source of income in retirement 

for most workers, are on track to replace a smaller 

share of pre-retirement income (about 4 percent 

less) as the normal retirement age rises to 67, owing to reforms enacted in 1983. Most individuals 

choose to receive the earliest yet smallest Social 

Security benefit available to them. The long-term 

financing imbalances in Social Security remain an 

unresolved issue.

For some share of our population, economic security in retirement is at risk. The problem is greater for widows and single women, who on average 

live longer than men, and tend to accumulate fewer 

savings and earn lower Social Security benefits. 

In the past, this Advisory Board has recommended that policy makers address the long-term financial health of our Social Security system, and we 

have drawn attention to the predictable but growing threats to retirement security. In this report, 

the Board adds its voice to a growing consensus 

that one effective way to shore up retirement security in the future is to find ways to extend individual working careers when possible.

Continuing to work and/or postponing retirement benefits can significantly increase the resources available to individuals in retirement. Every additional year spent working provides income, 

reduces the need to draw down one’s assets, provides an additional opportunity to save, and allows 

already accumulated savings to grow. This can be 

especially important for those approaching retirement with inadequate savings and for those who 

will experience longer than average lifetimes.

More Americans choose to begin receiving Social 

Security benefits at the earliest age of eligibility than 

at any other age. But for each year they delay taking 

benefits, they can significantly increase their monthly 
2 Working for Retirement Security 

benefit for the rest of their lives. This choice can be 

critical for economic security at older ages.

At the same time, delaying retirement also has 

the potential to enhance economic security for 

those covered by employer-sponsored retirement 

plans. In most traditional defined benefit plans 

and in cash balance plans today, benefit accruals 

continue for many workers at advanced ages. In 

defined contribution plans, extending work has 

two beneficial effects: (1) it extends the period over 

which contributions are made; and (2) it shortens 

the period where accumulated savings are relied on 

for retirement income.

Having a greater share of older Americans continuing to work will also provide additional tax 

revenue to improve the financial condition of the 

Social Security system as well as state and federal 

government budgets. Extending individual working lives should ameliorate the projected decline 

in national labor force growth and add to national 

income.

We recommend that older workers should be 

given information about the personal advantages 

of remaining employed for a longer period of their 

lifetimes to the extent they are able. We also recommend that individuals be encouraged strongly to 

consider under what circumstances it would be advantageous for them to delay the age they choose to 

begin receiving Social Security benefits.

We recommend that the Social Security Administration continue to provide the most accurate and objective information possible to help the public make 

appropriate choices about when to claim benefits. 

The agency should review all communication with 

the public to ensure it is not inadvertently encouraging people to claim at the earliest date possible.

There are already signs that older workers are 

beginning to reverse a decades-long trend toward 

earlier retirement, perhaps responding to the pressures described above. In addition, fewer people are 

applying for Social Security benefits at the earliest 

possible age. Some recent survey data suggest that 

those nearing the usual retirement ages desire and 

intend to work to older ages.

A substantial share of older Americans, however, 

will not be able to work longer because of ill health, 

disability, or a lack of employment opportunities. 

And even for those who wish to work longer, important barriers to remaining employed still exist. Our current patchwork of laws and regulations 

should be changed to do a better job of helping 

those who can work a few years longer and secure a 

better standard of living in retirement.

We believe there are opportunities to reform 

policies and regulations that affect Social Security, 

public and private pensions, health care, and tax 

and labor laws that can assist workers to stay in 

the workforce longer and reward their efforts adequately.

We recommend that public policy should be geared 

toward removing barriers and improving incentives 

to continued employment at older age. A set of coordinated and coherent policies should encourage and 

support those who want to extend their working 

lives, while providing adequate support for those 

who are unable to do so.

We reiterate that our nation’s systems of providing economic security to those who cannot work 

should be maintained and improved. Nothing in 

this report should be seen to contradict this strong 

belief.

Raising awareness of the benefits of longer working lives and supporting the choices of those who 

desire to do so will require more than just a more 

coherent set of policies:

We encourage employers to evaluate how older 

workers can continue to contribute in the workplace 

and, to the extent it is economically feasible, to 

adopt policies and practices that can accommodate 

a greater share of those who desire to extend their 

working lives. Older workers and their advocates, 

for their part, should consider the requirements 

they will have to meet so that continued employment benefits employer and employees alike.

In addition, individuals, institutions and public 

policies should recognize the importance of making 

lifelong investments that enhance a worker’s ability 

to remain productive at older ages and adapt to the 

changing needs of the economy. Adequate preparation for retirement is a life-long endeavor.
Working for Retirement Security 3

Introduction

The Social Security Advisory Board’s primary 

statutory responsibility is to analyze how the Social Security system, supported by other public and 

private systems, can most effectively assure economic security for those in retirement or who are 

disabled.

In our 2005 report, Retirement Security: The Unfolding of a Predictable Surprise, we described the 

major economic and demographic forces that will 

present the greatest challenges to economic security in retirement in the 21st century:

n longer life spans

n a declining ratio of workers to retirees

n a somewhat less generous Social Security system

n a private pension system that depends increasingly on employees to make active decisions 

about how much to contribute to retirement savings and how to invest

n health care costs that are growing faster than 

incomes and the economy as a whole

n globalization and economic changes that are 

shifting ways of doing business and changing 

employer-employee relationships.

We emphasized the need to meet those challenges through public policies to achieve sustainable Social Security and employer pension systems 

and to constrain health care costs. We also encouraged individuals to make responsible and informed 

choices about adequate saving, maintaining healthy 

lifestyles and considering how and when to retire.

In this report, we continue to focus on the need 

to assure adequate income in retirement by addressing two critical decision points: (1) when to 

withdraw from the workforce and (2) when to begin 

receiving Social Security benefits. Because of longer 

life spans, retirement is becoming increasingly expensive for individuals and families to fund. As our 

nation ages, and each worker must support a larger 

number of retirees, the cost of Social Security will 

increase. Working longer can help address both of 

these issues.

The Board is keenly aware that the decision to 

retire or withdraw from the workforce is not always voluntary, and that encouraging longer careers will not be practical for some portion of the 

population. Many older Americans are unable to 

work by virtue of their own health, or because of 

the need to take care of members of their family, or 

because of the unavailability of adequate economic 

opportunities. In addition, the willingness of older 

Americans to continue working depends heavily 

on the demand for their services and the state of 

the national economy.

Nothing in this report, therefore, should be seen 

to contradict our strong belief that our nation’s systems of providing economic security to those who 

cannot work should be maintained and improved. 

Nonetheless, we believe there are substantial benefits to individuals and to the nation of extending 

the working lives of most Americans. The benefits 

may well be most important for those who have 

had a lifetime of low earnings, who may not have 

ever participated in a private pension plan, or who 

for whatever reason are most in need of the “floor 

of protection” that Social Security was designed to 

provide.

This report is organized as follows:

Section I describes our concerns about the current workforce and retirement conditions: retirement is becoming more expensive as we live longer, and low savings, escalating health care costs, 

the rising Social Security retirement age and early 

claiming all make it harder to achieve economic security in retirement.
4 Working for Retirement Security 

Section II describes the advantages to both individuals and the nation of having a larger share of 

older workers remaining in the workforce.

Section III explains that while older workers are 

already beginning to delay retirement, there remain policies and practices that make working longer more difficult.

Section IV discusses a series of principles to guide 

policy makers in devising ways to improve the ability of those who are able to extend their working 

lives to do so.
Working for Retirement Security 5

I. Rising cost of retirement

Retirement in the United States is becoming 

more expensive. Our Social Security system costs 

will rise as the proportion of the population in retirement rises. As life expectancies continue to increase, individuals will need to accumulate more 

resources during their working years to fund a longer-than-expected retirement. Low savings rates, 

insufficient pension balances, rapidly escalating 

health care costs, and the increase in the Social Security full retirement age to 67 will present challenges for workers and families who wish to maintain a decent standard of living as they withdraw 

from the workforce.

Our Social Security system is becoming more 

expensive

The long-term financial shortfalls in the Social 

Security system are well known. This Board has 

written several reports detailing the causes of the 

impending and inevitable rise in the cost of benefits relative to payroll tax revenue. We have urged 

policy makers to address these long-term health of 

Social Security sooner rather than later.

The cause of the rising cost of Social Security is 

straightforward: our population is steadily growing 

older. Birth rates fell in the 1960s and have since 

remained at about those levels. Americans are, 

on average, living longer lives than at any time in 

our history. In 1960, only 9 percent of the population was age 65 or over. By 2000, that had risen to 

12 percent. By 2030, 19 percent of the population 

will be age 65 or over. As the very large baby boom 

generation enters its retirement years, the share of 

the population that is no longer in the workforce 

rises dramatically.

Because the contributions of today’s workers are 

used to pay the Social Security benefits of today’s 

retirees, as the proportion of the population receiving benefits increases, the cost of the system 

increases.1 Figure 1 illustrates that over the next 

25 years our society will shift from having about 

one retiree for every three workers to having about 

one retiree for every two workers. As a result, the 

cost of our Social Security system will increase by 

25 percent.

Most discussions of how we choose to face these 

rising costs of Social Security lead to the inevitable 

conclusion that additional revenues will have to be 

raised, and/or benefits will have to be reduced. The 

additional costs will be borne by workers or retirees. In this context, the importance of encouraging a larger fraction of the population to stay in 

the workforce at older ages is clear. Increasing the 

share of the population that is working and reducing the share that is drawing benefits will reduce 

the burden of rising costs.

Preparing for retirement is becoming more 

expensive for individuals

The forces that are making the nation’s Social 

Security system more expensive are also making 

it more expensive for families and individuals to 

accumulate adequate resources to fund their own 

retirements.

First, individual life spans are getting longer. According to the Social Security Administration, a 

65-year-old man was expected to live to age 78 in 

1960, age 82 in 2000 and is projected to live to 85 

in 2040. A 65-year-old woman was expected to live 

1 The cost of a pay as you go pension system can be expressed as 

[number of beneficiaries/ numbers of workers] x [average benefits/

average covered wages]. Under the U.S. Social Security system benefit formula, benefits increase with increases in the average wage, 

so the second term is rather stable. The major source of increased 

cost, therefore, is the significant increase in the ratio of retired 

beneficiaries to workers.
6 Working for Retirement Security 

even longer: to 82 in 1960, 85 in 2000 and is projected to live to 87 by the year 2040. There will also 

be a substantial increase in those reaching very advanced ages. About one in four of today’s 65 year 

olds can be expected to live to age 90, and one in 

ten will live to age 95. While there is some disagreement among demographic experts, many believe 

the extension of life spans will occur even faster.2

Second, even as Americans have been living longer, they have been retiring earlier. The median age 

of withdrawing from the workforce has fallen about 

five years for men and seven years for women over 

the past 50 years. While recent evidence suggests 

a slowing of that decline and notable increases in 

employment rates among older cohorts, those who 

do retire at age 62 will, on average, spend approximately one-third of their adult lifetime in retirement.

The combined effect of these two trends – living longer and retiring earlier – is that the average 

American worker today can expect to spend 50 percent more time in retirement than a similar worker did just 50 years ago. Table 1 illustrates these 

trends. In 1955 a typical working man would leave 

the workforce at 67 and expect to live in retirement 

about 12 more years until age 79.3 Today, a typical 

working man retires at age 62 and lives about 19 

more years in retirement, to age 81.

Clearly, to maintain a similar standard of living, 

saving for a longer and longer period of retirement 

requires setting aside a greater share of income during one’s working life. Solely as a function of living 

longer, attaining retirement security becomes more 

expensive.4

 The costs are increasing no matter what 

the format of retirement savings or retirement 

plan. This is true for workers who fund retirement 

2 Social Security Administration projections of life expectancy in 

2040 assume reductions in the mortality rate of about 0.6 percent per year, yielding improvements in life expectancy of about 

0.6 years per decade. The 2007 Technical Panel Report on Assumptions and Methods examined the range of expert projections 

and suggested improvements on the order of one year per decade 

are more reasonable. For evidence that eradication of smoking 

could dramatically improve life expectancy see Haidong Wang and 

Samuel Preston, Forecasting U.S. Mortality Using Cohort Smoking 

Histories. For a more pessimistic view of future improvements in 

life spans see Bruce Carnes and Jay Olshansky, “A Realist View of 

Aging, Mortality and Future Longevity,” Population and Development Review, 33(2), 2007. David M. Cutler, Edward L. Glaeser, 

Allison B. Rosen “Is the U.S. Population Behaving Healthier?” NBER 

Working Paper, March 2007, suggests rising levels of obesity could 

contribute to mortality enough to offset gains from declining 

smoking rates.

3 In this discussion we refer to the “typical worker” as someone at 

the median age of retirement. Half of workers can expect to spend 

more time in retirement and half less.

4 We assume for the sake of simplicity that the returns on savings 

and investments will remain similar to the long run historical 

averages.

Figure 1: Projected ratio of Social Security beneficiaries to workers: 2008-2050

0.000

0.050

0.100

0.150

0.200

0.250

0.300

0.350

0.400

0.450

0.500

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Beneficiaries per

worker

Benefit cost as a

percent of taxable

payroll

Source: The 2008 Annual Report of the Board of Trustees of the Federal Old-age and Survivors Insurance and Federal 

Disability Insurance Trust Funds.
Working for Retirement Security 7

out of private savings, a 401(k) or an Individual Retirement Account (IRA). The costs are also borne by 

employers who make contributions to their workers’ 401(k) account or fund defined benefit pension 

plans.

Below is a simplified example of how longer 

life spans and earlier retirements lead to pension 

costs that are about 50 to 100 percent more than 

50 years ago.

Illustrating the higher cost of longer retirement:

This numerical exercise demonstrates that the cost of 

saving for retirement increases as the lifetime devoted 

to working gets shorter and the time spent in retirement, in part due to a longer life span, gets longer.

Consider two workers, Jacob and Emily whose only 

source of income in retirement is their own savings. 

Jacob exhibits patterns of work and retirement that 

would have been common in the early 1960s. He starts 

work at age 21 and retires on his 65th birthday. He 

will spend the remaining 13 years of his life (through 

age 77) in retirement. Emily exhibits patterns of work 

that are common in the first decade of the 21st century. She also starts work at age 21 but retires on her 

62nd birthday, and then spends the remaining 21 years 

of her life (through age 82) in retirement.

We assume both start work earning $30,000 a 

year and get 4 percent annual pay raises. They earn a 

6.5 percent annual return on their savings throughout their lifetime and their goal is to save enough so 

that they could withdraw in each year of retirement 

an amount that would replace 

40 percent of their final year’s 

salary.5

Jacob would have to set aside 

4.78 percent of annual pay 

throughout his career to meet 

his retirement income goal. 

Emily, who has a shorter working life and longer retirement, 

needs to set aside 7.01 percent 

of annual pay throughout her 

career to meet her retirement 

income goal. Emily must save 

47 percent more than Jacob, 

as a percentage of her pay, to 

meet the same retirement income goal.

For comparison consider a 

third worker, Hannah, who 

is similar to Emily in regard to her retirement income 

goals, retirement age and life expectancy, but because 

she spent more time in school, only begins working at 

age 25. All assumptions for the purposes of the calculation are the same as described above except her 

starting salary is higher, $35,000, in recognition of 

her higher education level. Hannah, who has an even 

shorter working life than Emily but just as long a period of retirement, must set aside 8.23 percent of her 

annual pay to meet her retirement income goal. That 

amounts to 72 percent more than Jacob needs to save, 

and 17 percent more than Emily, as a percentage of annual pay.

It should be noted that this example is for illustrative 

purposes only and it not meant to be prescriptive. In 

the real world, the future is subject to considerable uncertainty in the expected ability to work a full lifetime 

without interruption, in the ability to achieve a desired 

rate of return on investments, and in the ability to estimate one’s own longevity. A real world worker, who was 

concerned about outliving his or her assets, might consider saving an even higher percentage of annual pay, 

or he or she may be able to purchase at retirement an 

insurance product with a guaranteed stream of income, 

known as an annuity. Social Security benefits are such 

a valuable part of retirement security because it provides insurance against the inability to work, against 

outliving one’s assets in retirement, and also against 

the increased cost of living through inflation.

5 For simplicity, we assume savings are deposited at the end of the 

year and are compounded annually.

Table 1: Median age at withdrawal from the workforce and expected years 

of life remaining in retirement by gender for selected periods

Median age at Retirement Remaining life expectancy as of 

the median age of retirement

Period Men Women Men Women

1950-1955 66.9 67.6 12.0 13.6

1965-1970 64.2 64.2 13.5 16.7

1980-1985 62.8 62.7 16.0 20.5

1985-1990 62.6 62.8 16.3 20.3

1990-1995 62.4 62.3 17.2 21.3

1995-2000 62.0 61.4 18.0 22.0

2000-2005 61.6 60.5 19.0 23.1

Source: Murray Gendell, “Older Workers: Increasing Their Labor Force Participation and Hours 

of Work,” Monthly Labor Review, January 2008.
8 Working for Retirement Security 

Additional factors make accumulating adequate 

retirement savings more challenging

Even as the need to set aside income rises, there are 

other forces that will, for some, put economic security 

in retirement at risk. Many workers have not been accumulating enough savings in their personal or retirement accounts. Rapidly rising health care costs will 

consume a growing share of earnings and retirement 

incomes. Experts project these costs will continue to 

rise faster than national income. Social Security benefits, the major source of income in retirement for 

most workers, is on track to replace a smaller share of 

pre-retirement income as the retirement age rises to 

67. Many individuals choose to receive the earliest yet 

smallest Social Security benefit available to them. Below we examine each one of these forces separately.

Savings

As Figure 2 illustrates, the household savings rate 

in the U.S. has fallen dramatically from a peak in the 

early 1980s to record lows today.6

 Along with declines in the financial savings rate, households have 

accumulated more debt, leading to an even greater 

decline in the total net savings rate. Although the 

household wealth of the baby boom is greater than 

previous generations, at least until the recent massive declines in the values of homes and the stock 

market, it is unclear whether those levels of wealth 

will be sufficient to support the retirement income 

expectations of future retirees. Recent survey data 

from the Employee Benefit Research Institute indicate that only about 70 percent of Americans report 

having saved money for retirement and a slightly 

smaller share are currently saving money.7

Retirement plan balances

About half of all full time workers participate in 

a retirement plan, and over the past 25 years there 

has been a dramatic shift from defined benefit (DB) 

plans to defined contribution (DC) plans. In 1980, 

62 percent of those with any retirement plan had 

only a defined benefit pension, while 16 percent had 

only a defined contribution plans, and 22 percent 

had both. By 2005, that share had largely reversed 

– 63 percent are enrolled only in a DC plan and 

10 percent only have a traditional defined benefit 

plan, while 27 percent have both.8

For many households, in addition to their home, 

the dominant form of saving for retirement is their 

401(k) plan. While these tax deferred plans can be 

a very effective vehicle to accumulate adequate assets for retirement, current workers do not universally participate, and many contribute a lower 

percentage of their pre-tax earnings than they are 

allowed. In fact, some do not even contribute up to 

the amount that is matched by their employer.9

 As 

recent events in the financial markets have shown, 

the value of assets in retirement plans can decline 

quite dramatically, which can affect the timing of 

and adequacy of income in retirement.10 Average 

balances in 401(k)s in 2006 were $121,000, but 

the median balance was just slightly more than 

half that at $66,650. As would be expected, average accumulated 401(k) assets increase with age, 

salary and job tenure with the same employer.11

Although average or median accumulations are 

important in explaining how private retirement savings plans are being used by workers, they mask the 

extent to which some people are using these vehicles 

effectively and others are not. Earlier we noted that 

a worker needed to save 8.2 percent of pay starting 

at age 25 if he or she wanted to retire by age 62 with 

accumulated savings that would replace 40 percent 

of pre-retirement salary during the retirement period. Under the assumptions we used there, such a 

worker would accumulate about three times pay in 

his or her retirement savings account by age 50 and 

about five times pay by age 62.

6 For a discussion of how different data sources affect measurement of the private savings rate, see: Rudolph Penner, “Measuring 

Personal Saving: A Tale of American Profligacy,” Urban Institute 

Brief Series, May 1, 2008.

7 Ruth Helman, Jack VanDerhei, and Craig Copeland, “The 2008 

Retirement Confidence Survey: Americans Much More Worried 

about Retirement, Health Costs a Big Concern,” Employee Benefit 

Research Institute Issue Brief, April 2008.

8 Employee Benefit Research Institute, based on U.S. Department 

of Labor, Form 5500 Summary Report. See http://www.ebri.org/

publications/benfaq/index.cfm?fa=retfaqt14a

9 James Choi, John Beshears, David Laibson, and Brigitte C. 

Madrian, “The Importance of Default Options for Retirement 

Savings Outcomes: Evidence from the United States.” In Stephen 

J. Kay and Tapen Sinha, eds., Lessons from Pension Reform in the 

Americas, pp. 59-87. Oxford: Oxford University Press, 2008. 10 We note that this is also true for balances in employer sponsored defined benefit plans. In the case of the private DB plans, 

the financial risk is borne by the employer, because by law they 

must meet their benefit payment obligations. In the DC plan, as in 

private savings, the financial risks are borne by individuals who are 

responsible for their level of contribution and choice of investment 

portfolio.

11 Employee Benefit Research Institute Issue Brief: “401(k) Plan 

Asset Allocation, Account Balances, and Loan Activity in 2006,” 

August 2007.
Working for Retirement Security 9

A recent study of actual savings behavior in a 

sample of private 401(k) plans found that few workers were saving at rates sufficient to reach these 

goals. The analysis in this study focused on workers 

between the ages of 50 and 64 who had been with 

their current employer for at least 20 years and 

were covered by a 401(k) plan. Among plan participants in the plans studied, 8.8 percent had no 

funds at all and 26.2 percent, including those with 

zero balances, had less than one-half their current 

annual pay. A total of 39.6 percent of participants 

had accumulated less than their annual pay. Only 

36.5 percent had more than two times pay in their 

401(k) accounts and only 9 percent had accumulated four times current pay.12

Health care costs

The cost of health care is rising rapidly for workers 

and retirees, even more rapidly than pension costs, 

and constitutes a major challenge to economic security in retirement. Estimates of the annual growth 

of health care spending over the next ten years is 

about 7 percent, considerably faster than the currently projected growth of national income (including inflation), of about 5 percent, according to the 

2008 Annual Report of the Board of Trustees of the 

Federal Old-age and Survivors Insurance and Federal 

Disability Insurance Trust Funds.

For workers who are already not setting aside 

more of their income to fund their retirement, rapidly rising out-of-pocket health care costs and/or 

insurance premiums will put even more of a strain 

on their budgets. Some will undoubtedly save less 

to be able to afford the current cost of their health 

care. For those with employer sponsored health 

insurance, the average employee contribution to 

premiums for family coverage has increased from 

$1,542 in 1999 to $3,354 in 2008, an increase of 

117 percent.13 Those who are self-insured or without coverage at all face a similar cost increase from 

a higher base.

For retirees, health care expenditures are also expected to consume an ever increasing share of their 

incomes. In 2007, the average annual Medicare 

out-of-pocket expense for an individual amounted 

to $3,800 ($316 a month) with expected growth of 

5-6 percent per year. Spending can vary significantly 

12 Sylvester J. Schieber, Pension Aspirations and Realizations: A 

Perspective on Yesterday, Today and Tomorrow (Washington, D.C.: 

Watson Wyatt Worldwide, 2007).

13 Kaiser Family Foundation and Health Research and Education 

Trust, “Employer Health Benefits,” 2008 Annual Survey.

Figure 2: Household savings rate 1970-2005 (percent of disposable income; 5-year trailing 

moving average)

8.8

10.3

9.4

10.4

7.5

6.2

3.5

1.8

7.3

9.8

10.4

13.0

8.7

6.0

2.3 2.1

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

1970 1975 1980 1985 1990 1995 2000 2005

National Accounts

Measure

Household balance

sheet measure

Source: McKinsey Global Institute, Talkin’ ’bout My Generation: The Economic Impact of Aging U.S. Baby Boomers, June 2008.
10 Working for Retirement Security 

around this average, for example, based on a person’s 

health habits or chronic illnesses. A recent study estimates that a couple retiring in 2010 would need to 

have an account worth about $206,000 to provide a 

stream of income over their lifetime that would cover their out-of-pocket health care costs.14 Another 

way to appreciate the impact of rising health care 

cost in retirement is to compare the growth of the 

average Social Security benefit and average out-ofpocket costs for Medicare Parts B & D. In 2010, total 

out-of-pocket costs will comprise about one-quarter 

of the average Social Security benefit. By 2080 that 

will rise to about two-thirds.15

The costs are rising at the same time that fewer 

private employers are offering retiree health benefits, and even when these benefits are still offered, 

retirees face rising premiums, higher out-of-pocket 

expenses and more stringent eligibility requirements. Among employers with over 500 employees, the share offering health insurance to early 

retirees has fallen from 46 percent to 29 percent 

from 1993 to 2006, while the share offering them 

to Medicare-eligible retirees has fallen from 40 percent to 19 percent over that same period. Most

active workers will never be eligible for employerprovided health insurance in retirement. 16

An unanticipated episode of serious illness can 

create significant financial liabilities. And even the 

need to prepare for anticipated costs, for example for 

long-term care at advanced ages, tend to be underestimated. As Americans live to advanced ages, the 

need to plan for long-term care will grow as well.

Social Security

Social Security covers over 90 percent of all paid 

employment, and it has become the single most important source of income for most retirees. Figure 3

illustrates that payments from Social Security, consistent with the program’s progressive design, are 

most important for those with the lowest incomes. 

Social Security benefits are also more important for 

those at advanced ages as the share of income from 

other sources declines. Currently, benefits provide 14 Another way to put this is a couple would have to buy an annuity worth $206,000 today to fund the average out-of-pocket costs 

over the rest of their lives. See Alicia H. Munnell, Mauricio Soto, 

Anthony Webb, Francesca Golub-Sass, and Dan Muldoon, “Health 

Care Costs Drive Up the National Retirement Index,” Center for Retirement Research at Boston College Issue in Brief, February 2008.

15 2008 Annual Report of The Boards Of Trustees of The Federal 

Hospital Insurance and Federal Supplementary Medical Insurance Trust 

Funds, 2008.

16 Provision of retiree health care benefits is declining for private 

employers, but remaining stable under public retirement systems 

such as for state and federal workers. See also Paul Fronstin and 

Stephen Blakely, “Is The Tipping Point in Health Benefits Near?” 

Wall Street Journal; and Paul Fronstin, “The Future of EmploymentBased Health Benefits: Have Employers Reached a Tipping Point?” 

Employee Benefit Research Institute Issue Brief, December 2007.

Figure 3: Sources of income for people age 65 and over, by income quintile, 2006

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Lowest Second Third Fourth Highest

Other

Public assistance

Earnings

Pensions

Asset income

Social Security

100%

Source: U.S. Census Bureau, “Current Population Survey,” Annual Social and Economic Supplement, 2007.
Working for Retirement Security 11

about 50 percent of income for the average beneficiary ages 62-64, about 62 percent for those ages 70-74, 

and 74 percent for those over age 80. More than four 

in ten beneficiaries over age 80 rely on Social Security 

for 90 percent of their total income, and just over one 

in four rely on it for 100 percent of their income.17

The amount of pre-retirement income Social Security benefits replace is falling. Under changes already enacted into law in 1983, the full retirement 

age gradually rose from 65 to 66, and starting in 

2017 will incrementally rise to age 67 by 2022. Under the Social Security system, the raising of the full 

retirement age results in a relatively smaller benefit at any given age. A decade ago a person could 

retire at 62 and receive 80 percent of the benefit 

they would have been eligible for at full retirement 

age. In another decade, a person retiring at 62 will 

receive 70 percent of the benefit they would have 

been eligible for at full retirement age.

Workers covered by Social Security are eligible to 

receive benefits as early as age 62. Social Security 

reduces monthly benefits for those who claim earlier than the full retirement age and raises them for 

those who delay claiming after the full retirement 

age up until age 70. From the perspective of the Social Security program’s finances, paying lower benefits for a longer period of time or higher benefits for 

a shorter period of time results in the same program 

costs. For any individual, the choice has a direct effect on the level of their inflation-protected Social 

Security benefits for the rest of their lives, and potentially the lifetimes of their spouses or survivors.

As Figure 4 illustrates, more people take their 

benefits at the earliest age they are eligible, 62, than 

at any other age. By choosing the smallest monthly 

benefit available to them for the rest of their lives, 

they are effectively reducing the value of the insurance Social Security provides against inadequate income later in life. To choose to begin receiving benefits at an age where one is still capable of working 

is to choose to receive less income protection at ages 

when other sources of income may not be available.

Are Americans adequately prepared for 

retirement?

Various researchers using various methods have 

tried to address the question of whether the future 

generations will have adequate income in retirement. There is a wide range of conclusions, but most 

acknowledge that some share of the population – 

from as little as one out of six to as many as two 

out of three – is unlikely to have sufficient financial 

assets or streams of pension income sufficient to 

achieve a standard of living comparable to when 

they were working.18 Because of recent large and 

widespread declines in the value of financial assets, 

the percentage of those nearing retirement that fall 

into this category today has likely increased.

The risk of inadequate retirement income appears to be greater for those with lower lifetime 

earnings, for younger cohorts and single persons.19

Because of their different patterns of employment 

and earnings, women tend to accumulate fewer 

assets for retirement than men. They also live, on 

average, several years longer. Single women are far 

more at risk than married women because married 

women, in addition to their own accumulated assets, can inherit their spouse’s wealth.

We do not attempt to resolve in this report which 

of these studies is most accurate in this report, but 

instead emphasize that the range of estimates is 

cause for concern and justifies considering ways to 

help individuals extend their working lives. As the 

next section will show, working longer can still improve retirement security whether individuals have 

made sufficient preparations or not.

17 Social Security Administration, Income of the Population 55 or 

Older, 2004, released July 2008.

18 At low end of estimates, less than 20 percent of near retirees 

had less wealth than their “optimal targets.” See: John Karl Scholz, 

Ananth Seshadri and Surachai Khitatrakun, “Are Americans Saving 

“Optimally” for Retirement?” Journal of Political Economy, 2006. A 

McKinsey Global Institute report in 2008, reported that two-thirds 

of baby boomers will not be able to replace 80 percent of their preretirement earnings. Estimates by scholars from Boston College 

in the New National Retirement Risk Index are somewhere in the 

middle at about 40 percent. 19 Center for Retirement Research at Boston College, “Retirements 

at Risk: A New National Retirement Risk Index,” June 2006; and 

Alicia H. Munnell, Anthony Webb, and Francesca Golub-Sass, “Is 

There Really A Retirement Savings Crisis? An NRRI Analysis,” Center for Retirement Research at Boston College, August 2007.
12 Working for Retirement Security 

Figure 4: Age distribution of those claiming retirement benefits in 1975, 1995, 2006

Men

0%

10%

20%

30%

40%

50%

60%

70%

62 63 64 65 66-69 70-74 75 +

1975

1995

2006

Women

0%

10%

20%

30%

40%

50%

60%

70%

62 63 64 65 66-69 70-74 75 +

1975

1995

2006

Source: Social Security Administration, Annual Statistical Supplement to the Social Security Bulletin, 2007.
Working for Retirement Security 13

II. Managing the cost of retirement

As funding retirement becomes more costly there 

are many responses we can take as a nation and as 

individuals. Finding ways to boost saving, improve 

retirement plan participation and coverage, reduce 

health care costs, and put Social Security on a sustainable footing would all be positive developments.

We believe that one effective strategy workers can 

use to manage the cost of retirement is to remain 

in the workforce longer. By working longer, one extends the period their retirement savings can accumulate and reduces the period of payout. We also 

believe many individuals and couples can better 

insure themselves against lower standards of living 

at older ages by delaying when they choose to take 

Social Security benefits. Waiting to take Social Security benefits can produce a higher stream of income 

for the rest of one’s life.

There are also wider benefits to society. If a higher 

share of the population is working relative to those 

who are retired, the cost of our Social Security 

system will be lower, government budgets should 

improve and labor force growth will improve. We 

discuss each of these advantages below.

Impact on individual well-being

Put simply, working longer and claiming retirement benefits later accomplishes three things: (1) it 

increases lifetime resources, (2) it shortens the period that must be financed from savings, and (3) it 

provides more guaranteed lifetime income.

Working longer

Continuing to work provides a household with 

more lifetime earnings than if they stop working. In 

addition to wages, those workers who have health 

or disability insurance through their employer, or 

who receive employer contributions to their retirement plan, will continue to benefit from these 

forms of compensation, or could receive larger pension benefits.

Continuing to work lengthens the time to accumulate retirement income as additional contributions to 

savings can be made out of current earnings. Any accumulated balances will have additional time to grow.20

Even those who have sufficient savings to continue 

at their current standard of living can benefit from 

accumulating larger savings balances as protection 

against unforeseen or emergency expenses. If health 

care costs continue to rise unabated, it may take more 

income to afford non-health care consumption.

Continuing to work shortens the draw down period from one’s accumulated assets.21 As was discussed in the previous section, funding a shorter 

retirement is less costly.

Delaying Social Security benefits

Independent of the decision to stop working, individuals can improve their economic security in 

retirement by waiting longer to claim their Social 

Security benefits.

Delaying claiming of Social Security will increase 

a person’s monthly benefit amount for life. For example, as Figure 5 illustrates, a person who is eligible today to receive a monthly benefit of $1,000 

at age 66, would receive only $750 per month (or 

25 percent less) if benefits are claimed at the earliest possible age of 62. Waiting until age 70 would increase monthly benefits by 32 percent to $1,320.22

20 On average over time the expectation is that investment returns 

will continue to grow the longer they remain invested. Saving 

should be a part of preparation for economic security as early in life 

as possible. 

21 Individuals who convert their savings, or pension balances into 

annuities, can insure themselves, for a price, against outliving their 

assets. 

22 These reduced or increased benefits apply for the rest of the 
14 Working for Retirement Security 

claimant’s life, although benefits are increased each year to keep 

up with inflation. If additional earnings are high enough to replace 

earlier earnings in the benefit calculation, additional work will 

increase benefits even further.

Claiming Social Security benefits at either the 

full retirement age or later is valuable because the 

monthly sum provides a stream of inflation-protected income over the rest of one’s lifetime. Thus 

delaying claiming provides a higher level of insurance against insufficient income at advanced ages. 

Although no one has perfect foresight about how 

long they or their spouse may live, many people 

underestimate the amount of time they spend in 

retirement and overestimate how long their assets 

will last. A 62-year-old man in the year 2008 is expected to live another 19 years, while a 62-year-old 

woman can be expected to live for 22 years. It should 

be noted that half of the people will live longer than 

their “expected” life span.

While strategies for maximizing Social Security 

income over one’s lifetime can be complicated and 

depend on many circumstances, new research suggests that it can be advantageous for most individuals and couples to delay claiming Social Security 

benefits.23 Couples, in particular should consider 

how much the future benefits of the longer living spouse can be increased if the higher earning 

spouse delays the age at which they begin to receive 

their benefits.24

Estimates of the financial impact of working longer

Those who continue to work and who claim 

benefits later can reduce the cost of saving for retirement, or can enjoy a higher standard of living 

when they stop working. Simulations conducted 

by researchers at the Urban Institute calculate that 

working an additional year and delaying Social Security by one year increases retirement income in 

each year of retirement by almost 10 percent. Working an additional five years can boost annual retirement income by more than 50 percent. The effect is 

greatest for those with lower lifetime income. Those 

in the bottom 20 percent of lifetime income could 

increase their annual retirement income by almost 

23 James I. Mahaney and Peter C. Carlson, “Rethinking Social 

Security Claiming in a 401(k) World” in John Ameriks and Olivia S. 

Mitchell, Eds., Recalibrating Retirement Spending and Saving, 

September 2008. Alicia H. Munnell and Mauricio Soto, “Why 

Do Women Claim Social Security Benefits So Early?” Issue Brief, 

Center for Retirement Research at Boston College, October 2005. 

Steven A. Sass, Wei Sun, and Anthony Webb, “When Should Married Men Claim Social Security Benefits?” Issue Brief, Center for 

Retirement Research at Boston College, March 2008. 24 The odds of one or both members of a 65-year-old married 

couple living past age 90 are close to 60 percent.

Figure 5: Monthly benefits increase with starting age

assuming eligibility for a benefit of $1,000 at the current full retirement age of 66

$750 $800

$866

$933

$1,000

$1,080

$1,160

$1,240

$1,320

$-

$200

$400

$600

$800

$1,000

$1,200

$1,400

62 63 64 65 66 67 68 69 70

Monthly benefit amount

Age starting benefits

Source: Social Security Administration, 2008.
Working for Retirement Security 15

16 percent after one year, and almost 100 percent if 

they were able to work five more years.25

Estimates by the Congressional Budget Office 

(CBO) arrive at a similar conclusion. They calculated what a typical married couple with the median 

household income would need to accumulate in 

savings to produce a stream of income that would 

replace 80 percent of their pre-retirement after-tax 

income.26 If they both retire at 62 they would need 

to accumulate about $510,000 in assets in addition to Social Security. If they retire at age 66, they 

would need only $298,000 in accumulated assets 

and receive almost 40 percent more in annual Social Security payments. The CBO calculations show 

similar gains across all income groups and for single 

persons as well as couples.

Individual circumstances may be different, but 

across a wide range of scenarios, working longer 

and delaying the start of Social Security benefits 

can increase the stream of income available in retirement, and reduce the amount of assets that 

need to be accumulated by a given age. Those who 

accumulate more assets through pensions, personal saving or 401(k)s will be better off in retirement 

than those who accumulate less. But these results 

also suggest that working longer can help those 

who failed to save adequately for retirement.

There may well be additional non-financial benefits for individuals who continue to work at older 

ages. According to some researchers, work promotes 

social integration and social support, contributes 

significantly to a sense of personal identity, and 

may in fact promote physical health.27

Impact on Social Security finances

Increasing labor force participation by older 

workers has a modest but positive affect on the 

long-term finances of Social Security.

We begin by noting that there is no effect on Social Security finances if everyone claims their Social 

Security benefits one year later, but does not also 

work an additional year. The increase in monthly 

benefits from delaying an extra year is roughly offset by the shorter payout period.

By contrast, if everyone delays benefits and works 

an additional year, according to simulations done by 

the Urban Institute, Social Security’s long term financial deficit in 2045 would be 2 percent smaller. If 

everyone worked five more years, the deficit in 2045 

would be reduced by about 30 percent.28 In general, 

having more people working increases the total payroll tax receipts but does little to increase benefit 

costs. The net effect depends in part on who works 

longer and at what wages, but under most scenarios 

overall financial impact would be positive.

Impact on federal budget/general revenues

In a similar fashion increasing the employment 

rates of older Americans would increase federal and 

state income tax revenue in addition to payroll taxes.

According to the Urban Institute projections, if 

everyone worked an additional year, by 2045, federal and state taxes (including income and payroll 

taxes) would be higher by an amount that is equivalent to 28 percent of the projected Social Security 

Trust Fund deficit. If everyone worked five additional years, the additional total tax revenues in 

2045 would be 59 percent larger than the projected 

Social Security deficit in that year.29

As the U.S. population ages the cost of public 

programs for retirees will claim a significantly larger share of federal budget resources. The growth in 

those programs, particularly Medicare and Medicaid, could make other government programs more 

difficult to fund. The greater the contributions to 

general revenues from additional labor force participation by older workers, however, the less necessary it will be to increase taxes, cut programs or 

increase borrowing to deal with the demands on 

the budget.

Impact on labor force growth and GDP

Because of demographic trends discussed earlier, 

the working age population in the U.S. is expected to 

grow more slowly than in the past. According to the 

Social Security Trustees annual labor force growth 

is declining from about 2.5 percent during the late 

25 Barbara Butrica, Karen E. Smith, C. Eugene Steuerle, “Working 

for a Good Retirement,” Urban Institute Retirement Project Discussion Paper, May 23, 2006. 26 Congressional Budget Office Economic and Budget Issue Brief, 

“Retirement and the Need for Saving,” May 12, 2004. 27 See Richard Johnson, Urban Institute. 

28 Barbara Butrica, Karen E. Smith, C. Eugene Steuerle, “Working 

for a Good Retirement,” Urban Institute Retirement Project Discussion Paper, May 23, 2006. 29 We mention the increase in total taxes to measure the scale of 

revenue increase. Only payroll taxes are used to pay Social Security 

benefits.
16 Working for Retirement Security 

1960s and 1970s, to just over 1 percent during the 

current decade, to less than 0.5 percent by 2020.

Slower growth in the labor force unless accompanied by faster growth in labor productivity will 

lead to slower economic growth. The Social Security 

Trustees project that annual real economic growth 

between 2020 and 2080 will average only 2.1 percent a year, compared to 3.1 percent growth average over the past 40 years.

The major factors influencing future labor force 

growth are demographic and behavioral. Positive 

workforce growth depends on larger numbers of 

workers entering the workforce in any given period 

than the number withdrawing for retirement or 

other purposes. The pool of new workers entering 

the workforce is largely determined by a combination of young people reaching working age and new 

potential workers coming to the country from elsewhere around the world.

The size of future cohorts of workers will depend 

both on birth rates and the net rate of immigration. 

If birth rates were to rise, it would still take about 

two decades to affect the size of the workforce because added newborns today would not be entering 

the workforce until they reached their late teens or 

early twenties. Increased immigration of working 

age adults has a more immediate impact on labor 

force growth. While more immigration would help to 

ameliorate some of the issues being raised here, the 

current political environment does not suggest that 

this a solution that policymakers will likely pursue as 

they consider the policy options open to them.

Another way to stimulate workforce growth rates 

is to change behavior patterns among the population groups able to work. Over much of the last half 

of the 20th century, for example, the labor force in 

the United States grew considerably because an increasing percentage of women of working age chose 

to work outside the home. At the same time, the 

growth in the U.S. labor force was dampened because many workers chose to retire at earlier ages 

than prior generations. Labor force participation 

rates of women are such today that there is little 

potential to increase aggregate labor force levels by 

encouraging more prime-age women into the labor market. But there are many able-bodied people 

in their 50s and 60s, who have been retiring but 

could instead choose to extend their working lives 

and have a significant effect on the size of the labor 

force going forward.
Working for Retirement Security 17

III: Influences on a changing retirement landscape

The concept of leaving the labor force simply because one reaches an arbitrary age is a fairly recent 

phenomenon. Historically, it was quite common for 

people to remain in the labor force as long as they 

were physically able to do so because they simply did 

not have enough income to retire. Even as recently as 

the late 1940s nearly half of the men aged 65 and over 

were still in the labor force compared to only about 

one in five today. For most of the 20th century, economic and policy developments that have improved 

retirement income security have allowed workers to 

devote a larger portion of their lives to an increasingly attractive period of retirement. The steady growth 

of household income during one’s working years allowed for the accumulation of personal savings, while 

public and private pensions systems arose to provide 

secure streams of income during retirement.30

The expectation that workers could retire with 

economic security sometime in their early 60s has 

become an important accomplishment of national 

policy as well as a measure of national prosperity. 

But economic and demographic forces continue to 

evolve with important implications for how and 

when workers can and should expect to retire. This 

section describes how today’s workers are adapting to this changing landscape: how some workers 

are already making the decision to continue working longer and how policies and practices affect the 

ability of workers to improve their economic security in retirement.

Changing patterns in labor force participation

For most of the 20th century, men have retired at 

earlier and earlier ages as they have become increasingly able to afford leaving the workforce. However, 

over the past 15 years this trend seems to have leveled off and even reversed for men over age 60 (see 

Figure 6). In the 30 years from 1955 to 1985 the labor force participation rates of men aged 60-64 fell 

33 percent before leveling off. Since 1994 the rate 

has increased about 12 percent. Those most likely 

to work at older ages are more educated, in better 

health, and have higher incomes.

The working lives of women have followed a different pattern than the working lives of men, as 

Figure 7 illustrates. Over the past 40 years, more 

and more women at all ages have entered the labor force and for the most part are staying to older ages. The labor force participation of women 

aged 60 to 64 increased 15 percent from 1955 to 

1985; between 1985 and 1993 the rate continued 

to rise but a slower rate of about 10 percent. The 

rate began to accelerate in 1994, rising to over 

25 percent. Women are more likely to stay attached 

to work for longer periods than in previous generations where women tended not to work outside of 

the household or moved in and out of work. In addition, women over age 55 are currently much more 

likely than men of a similar age to work part-time.

It seems quite likely that this trend toward working longer may continue. In a recent survey by the 

McKinsey Global Institute about 40 percent of baby 

boomers said they expected to work longer during what they might have previously thought of as 

their retirement years. Of those about one-third 

said they would do so to stay engaged in the world 

of work, because they enjoyed the job, the interactions with others, or the chance to make positive 

change. About two-thirds expected to work longer 

for financial reasons, to maintain benefits, maintain their lifestyle, or to meet expenses.31 The desire 

30 See Dora Costa, The Evolution of Retirement: An American Economic History 1880-1990, University of Chicago Press, 1998.31 McKinsey Global Institute, Talkin’ ’Bout My Generation: The 

Economic Impact of Aging U.S. Baby Boomers, June, 2008.
18 Working for Retirement Security 

Figure 6: Labor force participation rates of men by age group: 1968-2005

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

55 to 59 60 to 64 65 to 69 70 to 74

Source: Bureau of Labor Statistics.

Figure 7: Labor force participation rates of women by age group: 1968-2005

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

55 to 59 60 to 64 65 to 69 70 to 74

Source: Bureau of Labor Statistics.
Working for Retirement Security 19

to maintain employer-based benefits, in particular 

health insurance, is a major decision factor for some 

workers when they are weighing their retirement 

options.32

Possible reasons for the increase in labor force 

participation

The reasons for the more recent patterns of increased labor force participation by older workers 

are varied. For some, this is a response to the rising 

cost of retirement and changing structure of incentives in public and private retirement plans. Social 

Security rule changes have raised the full retirement age and increased the rewards that come with 

working and claiming benefits after reaching the full 

retirement age. Private employer-sponsored retirement plans have undergone a dramatic shift away 

from defined benefit plans and toward defined contribution plans that are generally portable, accrue 

gradually and do not have a target retirement age. 

And for some workers, the need to maintain health 

insurance coverage that is tied to employment has 

led to decisions to delay retirement.33

Recent trends in claiming Social Security 

benefits

As workers delay their withdrawal from the 

workforce, they are also choosing to delay slightly 

the age at which they take their Social Security benefits.34 In 1995, over 45 percent of men aged 62 to 

64 were receiving Social Security retirement benefits. By 2006 only about 38 percent of men aged 62 

to 64 were receiving retirement benefits.35 The age 

at which both men and women have been claiming retirement benefits has been rising for many 

of the same reasons that may explain why they are 

remaining in the workforce longer. Recent changes in Social Security rules, namely the increase in 

the full retirement age36 and the elimination of 

the retirement earnings test after the full retirement age,37 have had some effect on benefit claiming. The tendency to elect benefits at the earliest 

age is diminishing. 38 The incremental addition to 

benefits for delaying claiming benefits beyond the 

full retirement age until age 70, known as “delayed 

retirement credits” has grown more generous providing an additional incentive to postpone taking 

benefits.

Wide-range of “retirement” ages may be 

sending mixed signals

For each individual the decision about how and 

when to retire is a very complex issue that requires 

an assessment of available retirement income and 

assets, personal and family health status, as well as 

such factors as job satisfaction, and availability of 

desirable work opportunities. There are many areas 

of federal law and regulations that affect mature 

workers, and navigating the myriad retirement options and rules can be quite challenging for many 

potential retirees. The nation’s well-intentioned 

patchwork of laws and regulations designed to meet 

the needs of workers in a wide range of circumstances sends a variety of often confusing signals 

about when is the “right” time to retire. Depending 

on which type of program or plan is involved, the 

“retirement age” can range from as early as age 55 

to as late as age 70.

Workers with sufficient covered employment are 

first eligible for reduced Social Security benefits at 

age 62. The “full” retirement age for Social Security 

has traditionally been 65, but has increased from 

32 Gaobo Pang, Mark Warshawsky, and Ben Weitzer, The Retirement 

Decision: Current Influences on the Timing of Retirement among Older 

Workers, Watson Wyatt, February 2008. 33 Friedberg, Leora, “The Recent Trend Towards Later Retirement,” 

Center for Retirement Research at Boston College Issue Brief, 

March 2007; and Gaobo Pang, Mark Warshawsky, and Ben Weitzer, 

The Retirement Decision: Current Influences on the Timing of Retirement among Older Workers, Watson Wyatt, February 2008. 34 Jae Song and Joyce Manchester, “Have People Delayed Claiming 

Retirement Benefits? Responses to Changes in Social Security 

Rules,” Social Security Bulletin, Vol. 67, No. 2, 2007; also Muldoon 

and Kopcke, “Are People Claiming Social Security Benefits Later?” 

Center for Retirement Research at Boston College Issue Brief, 

June 2008. 35 Congressional Research Service Report for Congress, Older 

Workers: Employment and Retirement Trends, September 15, 2008.

36 The 1983 Amendments to the Social Security Act implemented 

a schedule of gradual increases in the full retirement age. For individuals born in 1937 or earlier, the full retirement age – or the age 

at which full retirement benefits are payable, remains at age 65. But 

for people born in 1938 and later, the full retirement age increases 

by 2-month intervals until it reaches age 67 for those born in 1960 

or later. The amendments did not change the age for claiming 

reduced benefits at the earliest age of 62.

37 The Senior Citizen’s Freedom to Work Act of 2000 eliminated the 

earnings test for individuals aged 65-69 who had elected to receive 

retirement benefits. Prior to this change, beneficiaries who had 

reached full retirement age and worked and earned above a certain 

threshold had their monthly benefits either reduced or withheld in 

its entirety.

38 Jae Song and Joyce Manchester, “Have People Delayed Claiming 

Retirement Benefits? Responses to Changes in Social Security 

Rules,” Social Security Bulletin, Vol. 67, No. 2, 2007.
20 Working for Retirement Security 

age 65 to 66 at the beginning of this decade, and 

in the next decade will gradually increase to age 67 

for workers born in 1960 and later. The maximum 

benefit is available to those who claim at age 70.39

Medicare eligibility begins at age 65, and it has 

not changed since its inception, despite increases 

in longevity and increases to Social Security’s full 

retirement age.

Tax and pension regulations define a wide range 

of retirement ages. IRS rules require that the 

“normal retirement age” in a defined benefit taxqualified pension plan not exceed age 65.40 Normal 

retirement ages vary across firms but participants 

in defined benefit pension plans may be eligible 

for benefits at earlier ages provided they leave employment of the plan sponsor.41 State and local retirement plans frequently base eligibility on years 

of service rather than on age and, as a result, it is 

not unusual for employees to qualify for an unreduced benefit before age 60. Tax rules permit withdrawals without penalty from both defined benefit 

and defined contribution plans as well as IRAs as 

early as age 59 1⁄2. If distributions are provided as 

an annuity, there is no tax penalty even at earlier 

ages. IRS rules also require minimum payouts by 

age 70 1⁄2.

What effect this range of retirement eligibility 

ages has on the decisions of workers to retire is unclear. But some researchers believe that the age at 

which public and private rules define the earliest eligibility for retirement does play an important role 

in setting social expectations about what is normal 

or acceptable.42

Understanding the messages about claiming 

retirement benefits

When to claim Social Security retirement benefits is a very important decision in the lives of most 

workers and should be made within the context of 

an individual’s unique circumstances. The Social 

Security Administration has developed a variety of 

public information tools designed to present the salient issues relevant to that decision. Many of these 

communication vehicles, however, unintentionally send unclear messages about the relationship 

between the claiming of benefits and withdrawing 

from the workforce – between taking “retirement 

benefits” and actually “retiring” from work. The 

agency inadvertently frames the benefit election 

choice in a manner that treats these very different 

and separate decisions as if they were inextricably 

linked, and as a result may send mixed signals to 

potential retirees about how continuing to work affects their benefits. The Advisory Board recognizes 

and is encouraged by recent efforts of the Social 

Security Administration to review its public information vehicles and clarify its procedures and communication strategies.

Pension plans and the effect on retirement 

decisions

Pension plans, whether public or private, form 

the foundation for retirement security in the 

United States for many workers. Their relative generosity has been instrumental in assuring retirement security for several generations. However, 

we have entered an era where the expected income 

from pensions is, for many private sector workers, shrinking or disappearing and this realization 

may result in changing expectations relative to the 

length of time they spend in active employment. 

Moreover, the features of these plans can influence 

an employee’s decision to stop working, as well as 

the employer’s decision to encourage older workers 

to stay at work.

Recent changes in federal law have created a more 

favorable employment environment that could aid 

in the retention of older workers. While workers 

still need to understand their particular pension 

plan rules and how those rules may affect their retirement timing, the option of working longer and 

continuing to contribute to a pension plan deserves 

consideration. As we have discussed earlier, work39 Incremental benefit increases, known as delayed retirement 

credits, were first made available in 1971 to those working until 

1970, briefly raised to age 72 then returned to 70 in 1983. 40 Or the 5th anniversary of plan entry if a participant enters 

within five years of the normal retirement age. GAO, Retirement 

Decisions: Federal Policies Offer Mixed Signals About When to Retire, 

July 2007. 41 In about two-thirds of private employer plans the normal retirement age is set at 65; in about one-sixth of them, the age is 62, and 

in most of the remainder, age is set at 60 or 55. Bureau of Labor 

Statistics (BLS) National Compensation Survey: Employee Benefits 

in Private Industry in the United States, 2002–2003. Washington, 

DC: U.S. Department of Labor, 2005. 

42 See Eugene Steuerle presentation to Social Security Advisory 

Board Forum ,“Policies to Help Extend the Working Life of Older 

Americans,” in Appendix I of this report. The volume Social Security 

Programs and Retirement Around the World, Volume I, Univers ity 

of Chicago Press, 1999 edited by Jonathan Gruber and David Wise 

shows that across countries, the age workers withdraw from the 

workforce responds to the official retirement age in national pension systems.
Working for Retirement Security 21

ing and contributing for a longer period can have a 

positive financial impact on an individual’s overall 

income stream in retirement.

Defined benefit plans

Traditional defined benefit (DB) pension plans 

provide retirement benefits based on a specific period of participation and contribution. While the age 

of eligibility may vary, each plan carries a definition 

of normal retirement age; and the benefits typically 

accrue based on salary and/or years of service. For 

each year spent working after reaching the plan’s 

retirement age, in some plans, the employee often 

foregoes a year of pension benefits without adding 

appreciably to the amount of the pension.

Social Security provides an extremely valuable 

income stream that protects retirees against outliving their assets and the increasing cost-of-living. 

For most retirees it is the single largest source of 

income throughout retirement. Somewhat different than traditional defined benefit plans, Social 

Security benefits accrue rapidly with years of work 

up to some point, and then the rate of accrual diminishes up to 35 years of coverage. After that, it 

drops to almost nothing for many workers.

Specifically, Social Security benefits are calculated 

based on the average of a worker’s highest 35 years 

of earnings.43 To qualify for benefits, workers must 

have at least ten years of covered earnings in order to qualify for benefits. For a worker with only 

ten years of covered earnings at retirement, the 

earnings are still averaged over a 35-year period. 

The redistributive feature of Social Security means 

a typical worker earns about half of his or her lifetime benefits in the first ten years of covered employment. Beyond that, each year of earnings for 

an individual with fewer than 35 years of earnings 

increases lifetime average earnings but at a declining rate, since it replaces a zero in the 35-year average. As average lifetime earnings increase, the 

Social Security benefit continues to grow. But an 

individual who has already worked 35 years will not 

increase their average lifetime earnings or benefit 

much, if at all, with a 36th year of covered earnings 

but will continue to pay the payroll tax.44 There is 

little additional financial payoff from Social Security in continuing to work after 35 years.

Defined contribution plans

In contrast to defined benefit plans, benefits in 

a defined contribution (DC) plan, such as a 401(k), 

continue to increase with age because the pension 

balance can increase as long employees continue 

to make contributions and assets are allowed to 

earn interest or grow. Employer contributions are 

typically based on a percentage of salary matched 

to the employee’s contribution up to some limit. 

Defined contribution plans require participants to 

assume the risks associated with the value of their 

investments, and must develop a strategy to avoid 

outliving their accumulated assets on retirement. 

Research shows that in part due to the absence of 

age-related incentives, workers in defined benefit 

plans retire as much as two years earlier, on average, than those in defined contribution plans.45 In 

addition, research suggests that those who experience significant income loss in their DC plans, such 

as during the major downturn in the stock market 

after 2000, are less likely to retire.46

Cash balance plans

Cash balance plans are defined benefit plans that 

promise a benefit based on an account balance that 

grows annually, typically by a stated percentage of 

the employee’s compensation and a rate of interest accumulation. Balances continue to accumulate 

with the number of years in the plan, like a defined 

contribution plan, thereby providing an incentive 

to work longer. Unlike a DC plan, the investment 43 The benefit calculation starts with the full record of a worker’s 

lifetime annual earnings. Past earnings up to age 60 are indexed 

by the “Average Wage Index” to reflect increases in the standard 

of living over time. Earning after age 60 are inflated by growth in 

the Consumer Price Index. The top 35 years of indexed earnings, 

including if necessary years with 0 earnings, are chosen divided by 

420 (12x35) to get the worker’s Average Indexed Monthly Earnings 

(AIME). A progressive formula is applied to the AIME to yield the 

Primary Insurance Amount which is then decreased or increased 

based on the age of the claimant relative to their full retirement 

age. A person who continues to work while receiving benefits will 

have their benefits recalculated annually if additional earnings are 

large enough to replace one of the 35 highest.

44 It is possible that the 36th year of working will replace an 

earlier, lower amount of earnings in the average, but earnings after 

age 60 are not indexed and are likely to make only a small difference. 

45 Leora Friedberg and Anthony Webb, “Retirement and the 

Evolution of Pension Structure,” Journal of Human Resources, 

XL(2):281-308, 2005.

46 Pang, Warshawsky and Weitzer, The Retirement Decision: Current 

Influences on the Timing of Retirement among Older Workers, Watson 

Wyatt, February 2008.
22 Working for Retirement Security 

risk is borne solely by the employer, and the employer is required to offer the benefits in the form 

of a life annuity.

Recent changes in pension and tax law

Recent changes in pension and tax law have improved the ability of employers to provide incentives to employees to extend their working lives. 

Pension statutes and regulations traditionally have 

prohibited individuals from working for the same 

employer while receiving retirement benefits, unless they have reached the plan’s normal retirement 

age.47 The Pension Protection Act of 2006, however, 

now permits employers to pay in-service benefits 

to employees age 62 and over. In addition, this law 

provides for the automatic enrollment of employees in a firm’s 401(k) plan. This shift in emphasis 

from optional enrollment to an automatic one will 

likely result in significantly higher plan participation rates. As workers become more involved in 

their retirement plans and begin to appreciate the 

ease of this savings method, they are more likely to 

strive to maximize their balances, which for some 

will mean working longer.48

Policies may adversely affect options

Medicare

Health care, as an employment and a retirement 

security issue, is one of the most pressing concerns 

for all Americans. For mature workers under age 65 

who are covered under an employer-based health 

care, the decision to stay at work is often motivated 

by this access to health insurance. However, the 

link to the work place may become less important 

for some once they reach 65, the age at which Medicare coverage begins.

Nearly all retirees have Medicare as their primary 

source of health insurance.49 Medicare pays for acute 

care and requires that beneficiaries pay part of the 

cost of their health care. This leaves about half of the 

expenses to be covered by other sources. As a result, 

most Medicare enrollees have some type of supplemental insurance, either through an employer’s retiree health plan or private insurance that covers the 

gap in coverage; in the case of low-income workers, 

Medicaid may cover the additional expenses. In any 

case, Medicare is the primary payer and the supplemental insurance covers the shortfall.

However, for individuals aged 65 and over who are 

working and are covered by an employer–sponsored 

health insurance plan, Medicare becomes a “secondary payer.” Thus, any health insurance claims that 

arise must be paid first by the employer’s plan; then 

any remaining uncovered services may be paid for 

by Medicare, provided the services are covered under Medicare.50 The purpose of the policy is to allow Medicare to target its limited resources at those 

who do not have another source of coverage.

Some researchers are concerned that the policy 

may have the unintended effect of making it harder 

to keep older workers in the workforce.51 There are 

two alternative ways of looking at the issue. From an 

employer’s perspective, older employees appear to be 

relatively more expensive because costs which might 

have been borne primarily by Medicare are now the 

employer’s responsibility.52 From an employee’s perspective, potential take-home pay is less because 

they must take a significant share of their compensation in the form of health benefits, even though they 

are entitled to primary coverage through Medicare. 

Whether understood as an increased cost to employers or a decrease in an employee’s take-home pay, the 

secondary payer policy may lessen employer demand 

for older workers, or employees may become less inclined to continue working much past 65.

47 Federal law allows workers to access defined contribution benefits at age 591⁄2 regardless of employment status. Employers may 

only allow plan participants who have left the firm to withdraw 

benefits. (Johnson, Mermin, Steuerle, 2006, p.28.)

48 It is also possible that employees who participate in their 401(k) 

plan from an early age, who contribute sufficiently and who earn 

returns on par with historical averages, may find they have accumulated enough savings to retire at earlier ages without needing 

to work longer. 

49 At age 65, enrollment in premium-free Medicare Part A (hospital 

insurance) and Part B (physician and medical services), which has a 

premium, is automatic; however, there is an “opt-out” provision for 

Part B. Under certain conditions, postponing enrollment in Part B 

can increase the monthly premium by 10 percent.

50 By law employers must provide the same coverage to their older 

and younger employees and they cannot require older workers to 

contribute more to their own health plans than younger workers. 

They cannot provide only Medigap coverage, and they cannot provide cash in lieu of health insurance benefits to those over 65. 

51 Gopi Shah Goda, John B. Shoven, Sita Nataraj Slavov, “A Tax on 

Work for the Elderly: Medicare as a Secondary Payer,” NBER Working Paper No. 13383, September 2007 estimates the implicit tax 

rate faced by workers age 65 and over who are eligible for Medicare 

and who have employer sponsored health insurance.

52 Employers are prohibited from requiring older employees to 

contribute more to their own health plan than younger workers. 

In addition, age-discrimination rules limit the ability of employers to reduce salaries based solely on age. See Richard W. Johnson, 

Gordon Mermin, C. Eugene Steuerle, “Work Impediments at Older 

Ages,” Urban Institute Retirement Project Discussion Paper, May 

2006.
Working for Retirement Security 23

Retirement: does it have to be “all-or-nothing”?

As workers begin to approach their later years 

and think about retirement, many choose to stop 

working entirely. But for others, a transition phase 

from full time work into something less, but still

short of complete withdrawal from the labor force, 

has tremendous appeal. Phased retirement, often 

defined as continuing to work for the same employer while gradually reducing the hours of work, 

presents a unique opportunity for employees and 

employers. As the nation faces the retirement wave 

of the baby boomers it is critical for employers to

manage this exodus of knowledge and expertise; 

facilitating an employee’s ability to retire in a more 

staged fashion is one option.

A variety of approaches to phased retirement 

such as job sharing, reduced work schedules, and 

rehiring retired employees on a part-time basis, can 

be used under the current pension laws. However, 

the extent to which current laws and policies discourage phased retirement arrangements, or render them not financially feasible, may encourage

some to retire earlier than they would prefer. The 

structure of some traditional defined benefit plans 

could make phased retirement financially untenable if working at reduced hours affects an employee’s benefit calculation. If, for example, pension 

benefits are based on a worker’s final salary, moving to part-time status at the end of a career could 

result in significantly lower benefits. Furthermore, 

current tax rules and the Employee Retirement Income Security Act (ERISA) requirements that make 

it difficult for employers to establish equitable 

phased retirement plans present a potential barrier 

to change.53

Health and opportunity shape older workers’ 

decisions

The long trend during the past century toward

earlier retirement has been, in many respects, the 

very positive result of higher incomes during the 

working phase of life and the increasing attractiveness of leisure opportunities.54 Some older individuals are financially prepared for retirement and will

be able to sustain their lifestyle through the many 

years ahead. For some mature workers the decision 

to work longer is not merely a financial decision; 

working beyond the earliest point of retirement 

eligibility may have no appeal, even if it means improving their standard of living in retirement. The 

more powerful influence on the decision to withdraw from work may be one’s own health status or 

that of family members, or it may be their assessment of the availability or attractiveness of alternative employment.

Health

Americans are living longer and are healthier than 

ever before. For most, these two factors can have a 

positive influence on whether they choose to work 

longer. Yet, there are individuals who may wish to 

continue working but are unable to for health reasons. For those in poor health, applying for Social Security disability benefits or electing early retirement 

benefits may be the appropriate or only choice.

About one in four workers age 51 to 55 develops 

serious health problems by age 62 that limit their 

ability to work.55 Although the incidence of Social Security disability is projected to remain stable or fall 

slightly in the population as a whole,56 the incidence 

of disability rises rapidly after age 50. In 2006, for 

example, the incidence of Social Security disability 

awards for men aged 50-54 was .89 percent, and for 

men aged 60-64 the rate was just over 1.7 percent. 

Current estimates are that 15-20 percent of those in 

their early 60s will not physically be able to work longer, at least not in jobs they are qualified for and that 

are available to them.57 The population of those too 

unhealthy or disabled to work is concentrated among 

those who have held physically demanding jobs and 

those whose health has interfered with their work 

careers throughout their lives. These latter groups, 

including those who receive Social Security disability 

benefits, are also less likely to have been able to save 

adequately for their retirement.

53 Richard W. Johnson, Gordon Mermin, C. Eugene Steuerle, 

“Work Impediments at Older Ages,” Urban Institute Retirement 

Project Discussion Paper, May 2006.

54 Dora Costa, The Evolution of Retirement: An American Economic 

History 1880-1990, University of Chicago Press, 1998.

55 Richard W. Johnson, Gordon Mermin, Dan Murphy, “The Impact 

of Late-Career Health and Employment Shocks on Social Security 

and Other Wealth,” Urban Institute Discussion Paper Series, 

December 2007.

56 2008 Annual Report of the Board of Trustees of the Federal Old-Age 

and Survivors Insurance and Federal Disability Insurance Trust Funds, 

2008.

57 See for example, John A. Turner, “Promoting Work: Implications 

of Raising Social Security’s Early Retirement Age,” Center for Retirement Research at Boston College, Issue in Brief, August 2007.
24 Working for Retirement Security 

Job opportunities

The desire and the ability to work at older ages 

are often muted by the lack of available opportunities. One in five workers age 51 to 55 is laid off 

from their job by age 62.58 Although older workers 

are no more likely to be laid off than their younger 

counterparts, they may have significantly more 

difficulty finding new jobs if necessary. The ability of older workers to remain employed or to find 

a job may also be more dependent on local labor 

market conditions than for younger, more mobile 

workers.59 Older workers may also be less willing to 

re-locate to find work. In the nation’s rural, frontier and tribal communities, there may be few jobs 

available for anyone.

Some older workers may find that their skills have 

become obsolete or do not match those needed by 

employers. Older workers may not be willing or able 

to make additional investments in their own education or training since the return on that investment 

may be uncertain or last only briefly. It is not clear 

that there are adequate or effective training opportunities available for older workers.

The decision to look for a job or invest in acquiring new skills might also be affected by pessimistic 

perceptions about the willingness of employers to 

hire older workers. Awareness of laws forbidding 

age discrimination in hiring may mitigate that perception. Older workers may also be more sensitive 

to the conditions of work and the willingness of 

employers to accommodate flexible work arrangements. They may be unwilling to work if they cannot work part-time, or if their pay is significantly 

less, or if a job is too physically demanding.

Employer’s demand for older workers

If continuing to work is to be an effective antidote to less secure retirements for older Americans, 

then employers will have to be willing to employ 

older workers. The attitudes of employers toward 

their current employees who wish to extend their 

careers, and toward older job applicants looking for 

a new job or coming back to work after a period of 

retirement can be a significant boon or a significant 

barrier to older workers. From an objective standpoint one would expect firms to hire workers regardless of age if it makes economic sense.

Older workers are often more expensive. Those 

with longer job tenure or seniority or with greater 

experience tend to have higher wages or salaries. 

Fringe benefits for older employees also tend to be 

more costly.60 Because health insurance claim costs 

are higher for older workers on average, employers 

with a greater share of older workers may face higher 

premiums.61 The cost of hiring older workers under 

traditional defined benefits plans can be higher than 

for younger new employees.62 The net costs of training tend to be higher for older workers relative to 

younger workers, because there is less time for the 

employer to recover the costs of the investment.

The important questions are: do older workers 

have characteristics that make them valuable to 

employers despite their higher costs, and do employers accurately perceive their value. Older workers may, in fact, be more productive than their 

younger counterparts; many employers report that 

this is in fact their belief.63 Older workers may have 

firm–specific knowledge or experience that is hard 

to replace. Survey data suggests that older workers 

are perceived as being more loyal, more reliable, 

more experienced and as having a stronger work 

ethic than younger workers.64

58 Richard W. Johnson, Gordon B.T. Mermin, and Dan Murphy, 

“The Impact of Late-Career Health and Employment Shocks on Social Security and Other Wealth,” Urban Institute Discussion Paper 

Series, December 2007.

59 Leora Friedberg, Michael Owyang, and Anthony Webb, “Identifying Local Differences in Retirement Patterns,” Center for Retirement Research at Boston College Working Paper, December 2008.

60 Richard W. Johnson, Gordon Mermin, C. Eugene Steuerle, 

“Work Impediments at Older Ages,” Urban Institute Retirement 

Project Discussion Paper, May 2006.

61 Under law, employers cannot require older employees to 

contribute more to their own health plan than younger workers 

do. As health care cost continue to escalate faster than growth of 

the economy or inflation these costs may become more and more 

salient to employers.

62 In a typical traditional DB plan new employees near the plan’s 

retirement age will qualify for pension benefits that represent a 

significantly higher share of their wages than a much younger new 

employee. Federal law prohibits employers from requiring more 

than seven years of service to qualify for full benefits and more 

than 80 percent of DB plans require 5 years. We note, however, 

that increased vesting periods in DB plans may promote longevity 

in the workplace in ways DC plans do not.

63 Munnell, Sass, and Soto, Employer Attitudes Toward Older Workers: Survey Results, 2006. 64 Ibid.

Age discrimination

The Age Discrimination in Employment Act (ADEA) 

prohibits age based discrimination in hiring, firing, 

layoffs, compensation and working conditions for 

workers age 40 and over in firms with over 20 em-
Working for Retirement Security 25

ployees. Similarly, age discrimination laws are vigorously enforced in the states, and legal action to 

address discrimination typically is brought first at 

the state level.

By some accounts, age discrimination is less 

prevalent today than in the past, although some 

studies report complaints that some employers 

treat older workers less fairly than younger workers, and that they are more likely to be laid off.65

In fiscal year 2006, 14,000 claims were filed with 

the Equal Employment Opportunity Commission 

under ADEA. Research on the effects of the ADEA 

suggests the law has prevented companies from unfairly dismissing older workers. There is some concern, however, that companies may have been inhibited from hiring older workers in the first place 

for fear of making themselves more vulnerable to 

future suits. In fact, proving discrimination in hiring may be more difficult than doing so in the case 

of termination.

65 Scott Reynolds, Neil Ridley and Carl Van Horn, “A Work-filled 

Retirement: Workers’ Changing Views on Employment and 

Leisure,” Worktrends 8.1, 2005. http://www.heldrich.rutgers.edu/

uploadedFiles/Publications/WT16.pdf

Working for Retirement Security 27

IV. Guiding principles for future policy considerations

The decision to retire, clearly a life changing 

event, can be a difficult one to make no matter how 

well prepared an individual may be. Ideally, older 

Americans should be able to enjoy a level of retirement income that allows them to maintain an appropriate standard of living, and retire with “dignity after years of contribution to the economy.”66

Clearly, individual savings and investment strategies play a major role, as do employer pensions and 

Social Security retirement benefits. No one can predict the future; workers who intend to extend their 

working lives may find those plans interrupted by 

disability, deterioration of their own health or by 

that of a spouse or close family member or by the 

development of unexpected changes in the labor 

market. The challenge is assuring that the nation’s 

laws and policies facilitate adequate retirement income, while not harming the income security of 

those who cannot work in their later years.

 Adequate preparation for a secure retirement 

should begin early in life, thus the policies and 

practices that affect that preparation should be 

available throughout a worker’s lifetime not just as 

they approach retirement age. Investments in financial as well as human capital – education, training, health maintenance – should allow workers to 

attain the flexibility when making choices about 

work and retirement.

The issues raised in this report require serious consideration by policy makers. To that end, 

the Board echoes the call in recent reports of the 

Government Accountability Office and of the Organization for Economic Cooperation and Development (OECD) for a comprehensive governmentwide strategy for dealing with the implications of 

an aging population and an aging workforce and 

would urge policy makers to study the approaches 

that other countries are using to encourage longer 

working lives (see Appendix II).

As a Board we recommend that policy makers 

should address the issue of enabling longer working lives. Rather than prescribe specific policies, 

however, we suggest several principles that should 

guide consideration of any future reforms.

n A primary objective of encouraging workers to 

remain in the labor force longer is to help people 

secure an adequate income in retirement at a 

time when that goal is becoming more and more 

challenging. The nation’s retirement security 

policies should support and reward additional 

years of work. Policy makers should look closely 

at removing barriers that stand in the way of a 

worker’s choice to stay in the workforce longer, 

or an employer’s desire to accommodate older 

workers.

n Policy approaches should be consistent and coordinated in order to minimize unintended consequences. Too often we have seen cases where 

a well-intentioned policy change has resulted in 

negative outcomes for some parts of the population. Specifically, policies to encourage later 

retirement need to be coordinated with policies 

that address workers with the most difficulty 

remaining at work whether because of a lack of 

opportunities, insufficient skills, or medical condition. In late 2006, the Board issued a major report, A Disability System for the 21st Century, that 

addresses the need to strengthen our system of 

providing economic security to those who cannot or can no longer work because of disability. 

We encourage policy makers to consider the ideas 

in that report as they address the continuum of 

circumstances over the life course affecting the 

ability of Americans to work.

66 P.L., 89-73 Older Americans Act of 1965.
28 Working for Retirement Security 

n Proposed policies should be designed using 

the sophisticated, rigorous and comprehensive 

modeling tools now available. Such tools should 

be used to simulate the likely effects of several 

policies at once and estimate their costs, including not just narrow programmatic measures, but 

broader budgetary and economic measures.

n Policies should be coordinated across a broad 

range of policy domains and contexts. At present 

there is no single federal agency responsible for 

coordinating such efforts. Moreover, legislative 

jurisdiction is spread across numerous Congressional committees, making it difficult to develop 

formal national policy goals for the desired level 

of labor force participation of older workers. The 

Federal Taskforce on the Aging of the American 

Workforce, coordinated by the Department of 

Labor’s Employment and Training Administration was convened in 2006 to address this lack 

of coordination. Their policy recommendations, 

however, did not touch on major areas of policy 

including Social Security rules.

n Policies that change expectations about how 

long working careers should be or that change 

the balance of incentives between work and retirement should be fair. They should give workers sufficiently advanced notice that changing 

behavior is warranted, but also provide enough 

impetus for the kind of changes in behavior that 

will increase the economic security of workers 

and retirees alike. Any reform proposals must be 

transparent to the public and the implications of 

those proposals clearly understood. For example, 

mechanisms that adjust retirement ages or link 

pension returns to longevity provide policy makers with flexibility, but such changes may not be 

well understood by the public.

n Not all policies need to be targeted specifically 

at older workers. Older workers’ needs are diverse 

and often coincide with the needs of younger 

workers, as well as people with disabilities. Policies that affect all workers such as universal design for more accessible work sites, more flexible 

work schedules, telecommuting, etc., can also 

have important benefits for older workers.

The nation’s first major effort to deal with economic security in retirement, the Social Security 

Act of 1935, arose during a time of great economic 

hardship and uncertainty. Over time, as the nation’s 

wealth grew, the system of social insurance that 

supports retirement security including Disability 

Insurance, Medicare, Medicaid, and SSI, as well as 

the employment-based private programs, and private savings have greatly improved the standards 

of living of those in retirement as well as provided 

an important level of security.

Almost 75 years after the founding of Social 

Security, our nation faces a different kind of challenge: longer life spans and relatively low birth 

rates mean our population will undergo an unprecedented degree of aging. This fundamental demographic shift in our population will challenge many 

of our assumptions about how we allocate income 

between workers and retirees, between the periods 

in our own lives when we are working and when 

we are retired. Devoting some additional share of 

our longer lifetimes to working is one way to meet 

this challenge. Employers and workers will have 

to adjust their expectations and make appropriate 

adjustments to the new realities of our evolving 

workforce. Policy makers can and should find ways 

to support that transition.

This Advisory Board has in the recent past addressed the need to look comprehensively at retirement security, to address the long-term financing 

shortfalls in Social Security, and to design a disability system for a new century. Even as policy makers 

turn their attention to these issues, we know that 

challenges to retirement security will continue. 

None is more pressing today than the rapidly rising cost of health care. Therefore, a crucial part of 

this process must be to educate and raise awareness 

about what is necessary to achieve economic security in retirement, not only among policy makers, 

professionals and researchers, but also among the 

general public.
Working for Retirement Security 29

Appendix 1

Summary of a Public Forum on Policies to Help Extend the Working 

Life of Older Americans Held Friday, January 18, 2008

In January of 2008, the Social Security Advisory Board and the University of Illinois Center for 

Business and Public Policy sponsored a public forum to facilitate discussion of public policies and 

workplace practices to help older workers extend 

their working lives. Nine experts from academia, 

think tanks, federal, state and international governmental organizations, and representatives of 

private employers and organized labor were invited 

as speakers to share their ideas and perspectives. 

Over 100 guests representing policy makers, federal government agencies, advocacy groups, and 

independent research organizations were in attendance and participated in the discussion.

This appendix summarizes the main points of 

each of the presenters, highlighting the nature of 

the issues involved and proposed policy options to 

address them. The ideas of the speakers do not reflect any endorsement by the Advisory Board. All 

the papers and presentation materials from that 

public forum are available to the public on the Advisory Board’s website.

http://www.ssab.gov/WorkforceForumMaterials.htm

Forum Presenters:

Alicia Munnell, Drucker Professor of Management 

Sciences and Director of the Center for Retirement 

Research, Boston College

Professor Munnell observed that the retirement 

system is contracting and that a substantial portion 

of the population will not have as much income in 

retirement as they would want to maintain their 

standard of living. She suggested that “most people 

should work longer and claim their Social Security 

benefits later.” She made three policy recommendations. First, the Social Security Administration 

should develop educational materials including an 

informational guide to help older workers and their 

families decide when to claim retirement benefits. 

Second, some administrative hurdles should be 

placed in front of those who are prone to apply for 

benefits at the earliest age, for example, by requiring spousal approval. Third, raise the earliest eligibility age for Social Security retirement benefits, 

currently age 62, in a way that would protect the 

most vulnerable.

Presentation slides: http://www.ssab.gov/documents/Slides-1MunnellPDF.pdf

Paper: http://www.ssab.gov/documents/Paper1MunnellSSABForum1-18-08.pdf

John Shoven, Schwab Professor of Economics, 

Stanford University and Director of the Stanford 

Institute for Economic Policy Research

Professor Shoven explained that because Americans are living longer but still retiring relatively 

early, they must prepare for considerably longer retirements than in the past. He said that a 65-yearold man in the year 2000, a 70-year-old woman in 

the year 2000 and a 59-year-old man in 1970 all 

had about the same mortality risks. He noted that 

several aspects of current retirement policy impose 

relatively high implicit taxes on older workers and 

recommended several policy reforms to remove 

barriers for longer careers. First, increase to 40 

from 35, the number of years of earnings used to 

calculate a workers retirement benefits. Second, 

calculate lifetime monthly earnings in the Social Security benefit using only the months a person actually works and then prorating the benefit amount. 

Third, eliminate payroll taxes for those who already 

have 40 years worth of earnings. He stated that 
30 Working for Retirement Security 

these changes could be done in a way that keeps the 

average benefit constant. A final policy option he 

recommended would be to change Medicare from 

being the secondary payer to the primary payer for 

those workers eligible for Medicare, and also enrolled in an employer sponsored health plan.

Presentation slides: http://www.ssab.gov/documents/Slides-2ShovenPDF.pdf

Paper: http://www.ssab.gov/documents/Paper2ShovenSSABForum1-18-08.pdf

Eugene Steuerle, Senior Fellow, Urban Institute 

(currently Vice-President Peter G. Peterson Foundation)

Dr. Steuerle made the observation that working 

more at older ages has broader implications than 

the impact on Social Security since it would increase national income, personal income, government tax revenues and as a result would reduces 

pressure on other workers to support all other government programs. He suggested several ways to 

encourage more work at older ages. First, change 

the “announcement effect” of Social Security that 

tells people they are “old” at age 62. Second, improve the transparency of Social Security benefits, 

by changing the confusing presentation of “actuarial adjustments,” removing the “earnings test,” and 

changing the presentation of replacement rates to 

adequately reflect relative income at older ages. 

Third, reducing implicit taxes on work at older ages 

due to the Social Security benefit formula, for example by eliminating payroll taxes after the retirement age, and removing the Medicare as secondary 

payer rule. Fourth, he described ways to “backload” 

benefits, by changing the lifetime benefit package 

so you receive more benefits at older ages and less 

at younger ages.

Presentation slides: http://www.ssab.gov/documents/Slides-3SteuerlePDF.pdf

John Martin, Director, Employment, Labor and Social Affairs, Organization for Economic Cooperation 

and Development

Mr. Martin made two recommendations. The 

first was to link pension benefits to life expectancy. 

He noted that 13 of the 16 OECD countries, as part 

of their pension reform packages, had introduced 

measures that would automatically link future pensions to changes in life expectancy. His second recommendation was to increase incentives for older 

unemployed workers to find jobs. He suggested 

that one way to do this was through introducing some form of wage insurance. For a displaced 

worker who accepts a job at a lower wage, as is often 

the case with re-employed older workers, wage insurance would provide an earnings supplement to 

make up part of the gap in earnings in the new job, 

compared to the previous job.

Paper: http://www.ssab.gov/documents/Paper6MartinSSABForum1-18-08.pdf

Keith Brainard, Research Director, National Association of State Retirement Administrators

Mr. Brainard noted that more than 16 million 

workers—about 12 percent of the nation’s workforce—are employed by state or local governments. 

Ninety-eight percent of those employees have access to an employer-sponsored retirement plan, and 

90 percent of them have some form of traditional 

pension or defined benefit plan as their primary retirement benefit. He described several approaches 

that state legislatures have approved to allow retiring participants to return to work after they have 

met normal retirement eligibility, but without forfeiting their pension benefit. He noted, however, 

that some such programs do not clearly mesh with 

federal tax laws or age discrimination and employment act laws.

Paper: http://www.ssab.gov/documents/Paper4BrainardSSABForum1-18-08.pdf

Thomas Dowd, Administrator, Office of Policy Development and Research, Employment and Training 

Administration, U.S. Department of Labor

Mr. Dowd described the work of a federal government interagency task force that the Department of Labor convened in 2006 to focus on the 

aging of the American workforce and the impacts 

of this demographic change on American society. 

The task force identified the following strategies: 

inventory the legal and regulatory barriers and disincentives to employment of older workers; coordinate research and demonstration agendas across 

federal agencies; develop a blueprint for awareness 
Working for Retirement Security 31

and outreach activities for older workers; facilitate 

self-employment for older workers; promote flexible work arrangements; make available to states 

tools and technical assistance to support the employment of older workers; and make available to 

older workers education resources on retirement 

and financial literacy.

Report of the Taskforce on the Aging of the 

American Workforce, February 2008:

http://www.doleta.gov/reports/FINAL_Taskforce_Report_2_27_08.pdf

Cynthia Donohoe, Vice President, Benefits, BAE 

Systems, Inc.

Ms. Donohoe discussed her company’s initiatives 

to retain experienced workers through a phased retirement program. After describing the flexible work 

schedules and options that her company provides, 

she discussed some practices that can encourage 

employees to take advantage of those options. One 

was to provide information to employees to show 

both the financial gains and the health advantages 

associated with longer employment. Another was 

to help employees find the options to extend their 

careers that best fit their situations. She also mentioned the need to educate managers to make them 

aware of alternatives for their employees. Finally, 

she noted that employee engagement is important. 

Employees have to feel that what they are doing is 

important and valued.

Presentation slides: http://www.ssab.gov/documents/Slides-7DonohoePDF.pdf

Kevin Mahoney, Associate Director, Human Capital 

Leadership and Merit System Accountability Division, U.S. Office of Personnel Management

Mr. Mahoney described U.S. Office of Personnel 

Management’s (OPM) efforts to deal with the coming retirement wave in the federal workforce. Strategies include advertising to help attract potential 

employees and restructuring of the hiring process 

to make it faster and more user-friendly. OPM has 

also suggested legislation, which has sponsors in 

both the House and the Senate, that would allow 

retirees to return to work on a part-time basis without adversely affecting their pension annuity.

Presentation slides: http://www.ssab.gov/documents/Slides-8MahoneyslidesPDF.pdf

Gerald Shea, Assistant to the President for Governmental Affairs, AFL-CIO

Mr. Shea stated that in order to keep people at 

work, they need good jobs, including decent wages, 

health care coverage, and some way to provide savings for retirement. He said that we cannot change 

the terms of the global economy, but we can help 

our country adjust to it through both private initiatives and public policy. One route that the AFLCIO has taken toward developing good jobs is by 

creating, with employers and on its own, careeradvancement programs. Such programs encourage 

workers to transition to a different skill set through 

higher education. He said that the educational system has not provided people with the reading and 

math skills they need for apprenticeship programs. 

As a result, there is a need to create a skill-building 

system that allows people to get into productive career paths toward good jobs.

Presentation slides: http://www.ssab.gov/documents/Slides-9SheaPDF.pdf

Working for Retirement Security 33

Appendix II:

What Some Other Countries are Doing

Many other advanced industrial countries in 

Europe and Asia are faced with the same economic 

challenges of rapidly aging populations and long 

trends toward earlier retirement. Compared to 

the United States, Japan and most countries in 

Europe are experiencing significantly more rapid 

population aging as their life expectancies’ improve faster and birth rates have fallen further. 

While about one in five Americans are projected 

to be over 65 by 2050, about one in three will be 

over 65 in countries such as Japan, Korea, Italy 

and Spain. Labor force growth in many of the 30 

developed countries that are part of the Organization for Economic Co-operation and Development 

(OECD) is expected to halt or even fall.67 In most 

of these countries, the public pension programs 

are also more generous and incentives for early 

retirement are greater than in the United States. 

Effective retirement rates in about two-thirds of 

OECD countries, however, are lower than in the 

United States.

But just as the challenge of their aging workforces appear more severe than in the U.S., their efforts 

to reform public retirement systems and encourage 

workers to delay retirement and remain employed 

longer have been more aggressive.

Recent reforms of public pension systems in 

OECD countries have reduced incentives for early 

retirement:68

n Twelve counties have reduced pension generosity for workers retiring at a given age with a given 

contribution history.

n Six have enacted other measures that reduce 

overall replacement rates.

n Eleven have increased the rewards and penalties involved with timing of retirement. Seven 

countries are increasing pension eligibility ages 

for both men and women, and five others are increasing ages for women.

Thirteen OECD countries now automatically link 

future retirement benefits to changes in life expectancy.69 Two-thirds of the major retirement-income 

reforms in OECD countries since 1990 have linked 

benefits and life expectancy in a variety of ways. In 

the late 1990s, five countries began to use defined 

contribution plans as a substitute for some or all 

of their public pensions; two others mandated contributions to private pensions in addition to their 

public plans. Three countries replaced their definedbenefit public plans with notional accounts. These 

notional accounts are financed on a pay-as-you-go 

basis, but they imitate defined-contribution plans 

by calculating benefits in a way similar to annuities, 

using life expectancy as a factor. Three countries 

have linked their defined-benefit public plans to life 

expectancy by introducing automatic reductions of 

benefit levels as life expectancy increases. And two 

countries have linked to either the pension eligibility age or the number of years of contributions 

needed to qualify for a full pension.70

OECD countries have also been reviewing other 

programs that may be alternative routes to leaving the workforce prematurely, such as long-term 

sickness and disability benefits and unemployment 

benefits, although changes in these programs have 

been more limited than those in pension programs. 

Canada and the Netherlands, for example, have re- 67 The 30 OECD countries include 23 European countries, the 

United States, Canada and Mexico, Australia, New Zealand, Japan, 

South Korea.

68 Organisation for Economic Co-Operation and Development, 

Live Longer, Work Longer, 2006, pp. 88-9; John Martin, “Some Suggestions for Reforms Based on OECD Countries’ Experiences,” p. 3.

69 John Martin, ibid. 70 Ibid., pp. 5-6.
34 Working for Retirement Security 

duced the number of new disability beneficiaries 

between 50 and 64 years of age. And Australia and 

the Netherlands have increased job-search requirements for unemployed older workers.71

OECD countries have also recognized the need 

to change employer attitudes and practices. Most 

OECD countries have enacted age-discrimination 

legislation and some have also undertaken public 

information campaigns to improve employer attitudes toward older workers. The United Kingdom, 

for example, began its Age Positive information 

campaign in 1999 to promote the benefits of age 

diversity in the workplace. The Netherlands has 

employed a cooperative effort of government, employers, and labor unions to improve attitudes toward older workers.72

The expense of older workers’ wages relative to 

their productivity may discourage employers from 

hiring or retaining them. OECD countries have 

taken a variety of approaches to this problem. Korea has encouraged the use of a “peak wage” system 

that would give greater employment security to 

older workers in exchange for downward flexibility in wages. Policies in some other countries have 

had a less direct effect. Moving from a system that 

sets wages based on seniority to one that uses individual performance, as has been done in Sweden’s 

public sector, has the effect of increasing wage flexibility.73 Several other countries have taken a more 

direct approach, offering wage subsidies or exemption from social insurance taxes for employers if 

they hire unemployed older workers.74

Some OECD countries have also taken measures 

to improve the employability of older workers by 

promoting training, providing employment assistance, and improving working conditions. In 

the late 1990s, Norway introduced a Competence 

Reform to meet growing demands for workplace 

skills. One of the target groups was older workers 

who did not have access to education when they 

were young. The effectiveness of training in returning unemployed workers to employment is difficult 

to evaluate, and there has been a range of outcomes 

of programs in various countries.75

Several OECD countries have been trying employment assistance programs targeted at older workers. The New Deal 50 Plus program in the United 

Kingdom, for example, provides participants with 

their own personal advisor at a job center to help 

with the job search and arrange for training to improve employability. In the Netherlands, specialized companies have been hired to provide workforce re-integration services to jobseekers over 50. 

Korea and Japan have established special offices to 

support older jobseekers. Canada, Australia, and 

the Czech Republic have also been experimenting 

with new approaches to provide employment services to older workers.76

Some countries are also undertaking programs 

to encourage longer working lives through meeting older workers’ needs through rehabilitation, 

training, and improvements in health and safety. 

Germany, for example, initiated a campaign called 

“30, 40, 50 plus – Working healthily as you get older.” Finland has a program to help employees better manage health conditions in order to maintain 

employability. In Denmark, a worker whose work 

capacity has become limited can hold a “flexjob,” receiving full-time pay while working only part-time 

or at a reduced pace, and the employer receives a 

subsidy for the reduced production. A number of 

efforts have also been undertaken to ease the transition from full-time to part-time work. In 2004, 

the United Kingdom changed its regulations on occupational pensions to allow workers to access pension benefits while continuing to work for the same 

employer on a part-time basis.77

71 OECD, pp. 96-7. 72 OECD, pp. 104-07. 73 In the United States, this policy would not likely pass muster of 

age discrimination laws as currently interpreted.

74 Ibid., pp. 111-12. 75 Ibid., 118-22.76 Ibid., 123-30. 77 Ibid., 131-34.
Working for Retirement Security 35

Social Security Advisory Board

Establishment of the Board

In 1994, when Congress passed Public Law 103-

296 establishing the Social Security Administration as an independent agency, it also created an 

independent, bipartisan Advisory Board to advise 

the President, the Congress, and the Commissioner 

of Social Security on matters related to the Social 

Security and Supplemental Security Income programs. Under this legislation, appointments to the 

Board are made by the President, the Speaker of the 

House of Representatives, and the President pro 

tempore of the Senate.

Advisory Board members are appointed to staggered six year terms, made up as follows: three appointed by the President (no more than two from 

the same political party); and two each (no more 

than one from the same political party) by the 

Speaker of the House (in consultation with the 

Chairman and the Ranking Minority Member of 

the Committee on Ways and Means) and by the 

President pro tempore of the Senate (in consultation with the Chairman and Ranking Minority 

Member of the Committee on Finance). Presidential appointments are subject to Senate confirmation. The President designates one member of the 

Board to serve as Chairman for a four year term, 

coincident with the term of the President, or until 

the designation of a successor.

Sylvester J. Schieber, Chairman

Sylvester J. Schieber is a private consultant on 

retirement and health issues based in New Market, 

Maryland. He retired from Watson Wyatt Worldwide in September 2006 where he had served as 

Vice President/U.S. Director of Benefit Consulting 

and Director of Research and Information. From 

1981 - 83, Dr. Schieber was the Director of Research 

at the Employee Benefit Research Institute. Earlier, 

he worked for the Social Security Administration as 

an economic analyst and as Deputy Director at the 

Office of Policy Analysis. Dr. Schieber is the author 

of numerous journal articles, policy analysis papers, 

and several books including: Retirement Income 

Opportunities in An Aging America: Coverage and 

Benefit Entitlement; Social Security: Perspectives 

on Preserving the System; and The Real Deal: The 

History and Future of Social Security. He served on 

the 1994 - 1996 Advisory Council on Social Security. 

He received his Ph.D. from the University of Notre 

Dame. First term of office: January 1998 to September 2003. Current term of office: October 2003 

to September 2009. Appointed by the President in 

September 2006 to serve as Chairman of the Advisory Board from October 2006 to January 2009.

Dana K. Bilyeu

Dana K. Bilyeu is the Executive Officer of the 

Public Employees’ Retirement System of Nevada. 

As the Executive Officer of the $21 billion pension 

trust she is responsible for all aspects of fund management including analysis of plan funding, investment oversight, operational and strategic planning, 

and fiduciary and governance issues. Mrs. Bilyeu is 

principally responsible for the relationship with 

the System’s independent actuary and oversees 

the data reconciliation process for actuarial valuations of the System. In her capacity as the Executive Officer, Mrs. Bilyeu provides information and 

analysis to the Nevada Legislature in consideration 

of pension policy issues affecting state and local 

government. Prior to her appointment as the Executive Officer, Mrs. Bilyeu served for eight years 

as the System’s Operations Officer, overseeing all 

aspects of benefit administration, including survivor, disability, and retirement benefit programs. 

Mrs. Bilyeu also was responsible for cost effectiveness measurement for all activities of the System. 

She was accountable for technology oversight as 

well as policy issues related to the public safety sec-
36 Working for Retirement Security 

tor of public employment. Prior to her employment 

at the System, Mrs. Bilyeu was the System’s legal 

counsel, representing the System in a variety of aspects from benefits litigation, contracts analysis, to 

Board governance. Mrs. Bilyeu is a member of the 

National Association of State Retirement Administrators, the National Council on Teacher Retirement, the National Conference of Public Employee 

Retirement Systems, and the National Association 

of Public Pension Attorneys. She also serves on the 

Public Employee Advisory Board for the International Foundation of Employee Benefit Plans. She 

received her Juris Doctor from California Western 

School of Law and her B.A. from the University of 

Arizona. Term of office: December 2006 to September 2010.

Jeffrey R. Brown

Jeffrey R. Brown is a professor in the Department 

of Finance at the University of Illinois at UrbanaChampaign. Prior to joining the Illinois faculty, Dr. 

Brown was an assistant professor of public policy 

at Harvard University’s John F. Kennedy School 

of Government. During 2001-2002, he served as 

Senior Economist at the White House Council of 

Economic Advisers, where he focused primarily 

on Social Security, pension reform, and terrorism 

risk insurance. During 2001 he also served on the 

staff of the President’s Commission to Strengthen 

Social Security. In January 2005, President Bush 

nominated Dr. Brown to become a member of the 

Social Security Advisory Board for a term ending 

September 2008. Professor Brown holds a Ph.D. 

in economics from the Massachusetts Institute of 

Technology, a Masters of Public Policy from Harvard University, and a B.A. from Miami University. 

He is a Research Associate of the National Bureau 

of Economic Research, a Research Fellow with the 

Employee Benefits Research Institute, and a Senior 

Fellow of the China Center for Insurance and Social 

Security Research. Professor Brown is a member 

of the American Economic Association, the American Risk and Insurance Association, the National 

Academy of Social Insurance, and the Risk Theory 

Society. Professor Brown has published extensively 

on public and private insurance markets, including publications in The American Economic Review, 

The Journal of Political Economy, The Journal of Public Economics, The Journal of Monetary Economics, 

The Journal of Risk and Insurance, The National Tax 

Journal, and numerous books. He is the recipient 

of the Lumina Award for Outstanding Research in 

Insurance and E-Commerce. Professor Brown is coauthor of the book, The Role of Annuities in Financing Retirement (MIT Press), and is co-founder and 

co-editor of The Journal of Pension Economics and 

Finance, published by Cambridge University Press. 

He has served as a consultant / expert panel member for the Executive Office of the President of the 

U.S., the General Accounting Office, the U.S. Treasury, the World Bank, and several private firms. 

Prior to graduate school, he was a Brand Manager 

at the Procter & Gamble Company. Term of office: 

October 2006 to September 2008.

Dorcas R. Hardy

Dorcas R. Hardy is President of DRHardy & Associates, a government relations and public policy 

firm serving a diverse portfolio of clients. After 

her appointment by President Ronald Reagan as 

Assistant Secretary of Human Development Services, Ms. Hardy was appointed Commissioner of 

Social Security (1986 to 1989) and was appointed 

by President George W. Bush to chair the Policy 

Committee for the 2005 White House Conference 

on Aging. Ms. Hardy has launched and hosted her 

own primetime, weekly television program, “Financing Your Future,” on Financial News Network 

and UPI Broadcasting, and “The Senior American,” 

an NET political program for older Americans. She 

speaks and writes widely about domestic and international retirement financing issues and entitlement program reforms and is the co-author of Social Insecurity: The Crisis in America’s Social Security 

System and How to Plan Now for Your Own Financial 

Survival, Random House, 1992. A former CEO of 

a rehabilitation technology firm, Ms. Hardy promotes redesign and modernization of the Social Security, Medicare, and disability insurance systems. 

Additionally, she has chaired a Task Force to rebuild vocational rehabilitation services for disabled 

veterans for the Department of Veterans Affairs. 

She received her B.A. from Connecticut College, 

her M.B.A. from Pepperdine University, and completed the Executive Program in Health Policy and 

Financial Management at Harvard University. Ms. 

Hardy is a Certified Senior Advisor and serves on 

the Board of Directors of Wright Investors Service 

Managed Funds, and First Coast Service Options of 

Florida. First term of office: April 2002 to September 2004. Current term of office: October 2004 to 

September 2010.
Working for Retirement Security 37

Marsha Rose Katz

Marsha Rose Katz is a Project Director at the 

University of Montana Rural Institute in Missoula, where her work has concentrated on assisting 

persons with disabilities to utilize Social Security 

work incentives to start their own businesses or 

engage in wage employment. Since coming to the 

Rural Institute in 1999, Ms. Katz has focused on 

providing training and technical assistance on both 

employment and SSI/SSDI to rural, frontier and 

tribal communities across the country. Previously, 

she worked for nearly 20 years in a disability rights 

community based organization, the Association for 

Community Advocacy (ACA), a local Arc in Ann Arbor, Michigan. She served as both Vice President of 

ACA, and Director of its Family Resource Center. It 

was at ACA that Ms. Katz began her nearly 30 years 

of individual and systems advocacy regarding programs administered by SSA, especially the SSI and 

SSDI programs. Ms. Katz has written numerous 

articles and created many widely distributed userfriendly general handouts on SSI and SSDI, the 

majority of which focus on the impact of work on 

benefits, and utilizing work incentives. She is the 

author of Don’t Look for Logic: An Advocate’s Manual 

for Negotiating the SSI and SSDI Programs, published 

by the Rural Institute. Her Bachelor’s and Master’s Degrees are from the University of Michigan. 

Ms. Katz’s many years of experience as a trainer, 

technical advisor, and advocate have been guided 

and informed by her partnership with people with 

disabilities, from her husband, Bob Liston, to the 

people she assisted in her work with ACA and the 

Arc Michigan, her current work at the Rural Institute, and her longstanding participation in ADAPT, 

the nation’s largest cross-disability, grassroots disability rights organization. Term of office: November 2006 to September 2012.

Barbara B. Kennelly

Barbara B. Kennelly became President and Chief 

Executive Officer of the National Committee to Preserve Social Security and Medicare in April 2002 after a distinguished 23-year career in elected public 

office. Mrs. Kennelly served 17 years in the United 

States House of Representatives representing the 

First District of Connecticut. During her congressional career, Mrs. Kennelly was the first woman 

elected to serve as the Vice Chair of the House 

Democratic Caucus. Mrs. Kennelly was also the 

first woman to serve on the House Committee on 

Intelligence and to chair one of its subcommittees. 

She was the first woman to serve as Chief Majority 

Whip, and the third woman in history to serve on 

the 200-year-old Ways and Means Committee. During the 105th Congress, she was the ranking member of the Subcommittee on Social Security. Prior to 

her election to Congress, Mrs. Kennelly was Secretary of State of Connecticut. After serving in Congress, Mrs. Kennelly was appointed to the position 

of Counselor to the Commissioner at the Social Security Administration. As Counselor, Mrs. Kennelly 

worked closely with the Commissioner of Social Security Kenneth S. Apfel, and members of Congress 

to inform and educate the American people on the 

choices they face to ensure the future solvency of 

Social Security. Mrs. Kennelly served on the Policy 

Committee for the 2005 White House Conference on 

Aging. Mrs. Kennelly received a B.A. in Economics 

from Trinity College, Washington, D.C. She earned 

a certificate from the Harvard Business School on 

completion of the Harvard-Radcliffe Program in 

Business Administration and a Master’s Degree in 

Government from Trinity College, Hartford. Term 

of office: January 2006 to September 2011.

Mark J. Warshawsky

Mark J. Warshawsky is Director of Retirement 

Research at Watson Wyatt Worldwide, a global human capital consulting firm. He conducts and oversees research on employer-sponsored retirement 

programs and policies.

A frequent speaker to business and professional 

groups, Dr. Warshawsky is a recognized thought 

leader on pensions, social security, insurance and 

health care financing. He has written numerous 

articles published in leading professional journals, 

books and working papers, and has testified before 

Congress on pensions, annuities and other economic issues. In addition to being a member of the 

Social Security Advisory Board , he is also on the 

Advisory Board of the Pension Research Council of 

the Wharton School.

From 2004 to 2006, Dr. Warshawsky served as 

assistant secretary for economic policy at the U.S. 

Treasury Department. During his tenure, he played 

a key role in the development of the Administration’s pension reform proposals, particularly pertaining to single-employer defined benefit plans, 

which were ultimately included in the Pension 

Protection Act (PPA) of 2006. He was also involved 

extensively in the formulation of Social Security 
38 Working for Retirement Security 

reform proposals, and oversaw the Department’s 

comprehensive 2005 study of the terror risk insurance program. In addition, Dr. Warshawsky led the 

efforts to update and enhance substantially the 

measures and disclosures in the Social Security and 

Medicare Trustees’ Reports, as well as the setting 

of the macroeconomic forecasts which underlie the 

administration’s budget submissions to Congress.

Dr. Warshawsky’s research has been influential in 

the 2001-2 regulatory reform of minimum distribution requirements for qualified retirement plans, 

the increasing realization of the importance of financial protection against outliving one’s financial 

resources in retirement, and a product innovation 

to integrate the immediate life annuity and longterm care insurance. For the latter research, he won 

a prize from the British Institute of Actuaries in 

2001 for a professional article he co-authored. Favorable tax treatment for this integrated product 

was also included in PPA due to Dr. Warshawsky’s 

advocacy.

Dr. Warshawsky has also held senior-level economic research positions at the Internal Revenue 

Service, the Federal Reserve Board in Washington, 

D.C. and TIAA-CREF, where he established the 

Paul A. Samuelson Prize and organized several research conferences. A native of Chicago, he received 

a Ph.D. in Economics from Harvard University and 

a B.A. with Highest Distinction from Northwestern 

University. Term of office: December 2006 to September 2012.

Members of the Staff

Katherine Thornton, Staff Director

Deborah Sullivan, Deputy Staff Director

Joel Feinleib

Beverly Rollins

George Schuette

Jean Von Ancken

David Warner