The Graying of Massachusetts: Aging, the New Rules of Retirement, and the Changing Workforce

The Graying of Massachusetts: Aging, the New Rules of Retirement, and the Changing Workforce A JOINT PROJECT OF: SPONSORED BY: MassINC THE MASSACHUSETTS INSTITUTE FOR A NEW COMMONWEALTH Publisher of CommonWealth magazine A Project of the Economic Prosperity Initiative MassINC wishes to express its thanks to those individuals and organizations whose financial support makes our work possible. Your generosity is deeply appreciated. MassINC’s Mission The mission of MassINC is to develop a public agenda for Massachusetts that promotes the growth and vitality of the middle class. We envision a growing, dynamic middle class as the cornerstone of a new commonwealth in which every citizen can live the American Dream. Our governing philosophy is rooted in the ideals embodied by the American Dream: equality of opportunity, personal responsibility and a strong commonwealth. MassINC is a non-partisan, evidence-based organization. We reject rigid ideologies that are out of touch with the times and we deplore the too-common practice of partisanship for its own sake. We follow the facts wherever they lead us. The complex challenges of a new century require a new approach that transcends the traditional political boundaries. MassINC is a different kind of organization, combining the intellectual rigor of a think tank with the vigorous civic activism of an advocacy campaign. Our work is organized within four Initiatives that use research, journalism and public education to address the most important forces shaping the lives of middle-class citizens: • Economic Prosperity—Expanding economic growth and opportunity • Lifelong Learning—Building a ladder of opportunity through the continuum of learning • Safe Neighborhoods—Creating crime-free communities for all • Civic Renewal—Restoring a sense of "commonwealth" MassINC’s work is published for educational purposes. Views expressed in the Institute’s publications are those of the authors and not necessarily those of MassINC’s directors, staff, sponsors, or other advisors. The work should not be construed as an attempt to influence any election or legislative action. MassINC is a 501(c) 3, tax exempt, charitable organization that accepts contributions from individuals, corporations, other organizations, and foundations. About MassINC’s Economic Prosperity Initiative Through the Economic Prosperity Initiative MassINC works to improve the overall economic well being of Massachusetts citizens by pursuing answers to a range of economic questions. Among them: How hard are people working and for what kinds of rewards? How secure are their futures? How healthy are our families? What are the strengths and limitations of state government in promoting economic activity? What is the role of the private sector? And, what are the keys to our future economic success? MassINC has a long history of work within this initiative. Past research projects include: Mass.Migration (2003), The State of the American Dream in Massachusetts, 2002 (2002), The Changing Workforce: Immigrants and the New Economy in Massachusetts (1999), The Road Ahead: Emerging Threats to Workers, Families, and the Massachusetts Economy (1998), and Lessons Learned: 25 Years of State Economic Policy (1998). Recent articles in CommonWealth magazine include: “Blue Collar Blues” (Spring 2004), “Job (Dis)Qualifications” (Fall 2003), “Mass. Production” (Summer 2003), “The Sprawl Doctor” (Spring 2003), “Life After Lucent: A region tries to adjust”(Winter 2002), and “Heritage Road, Five Years Later: The American Dream, Still Elusive in Suburbia”(Spring 2001). All of MassINC’s research and CommonWealth articles are available free-of-charge through our website, www.massinc.org. The Graying of Massachusetts: Aging, the New Rules of Retirement, and the Changing Workforce Alicia H. Munnell Kevin E. Cahill Andrew D. Eschtruth Steven A. Sass with: Kevin Meme Amy Chasse Natalia Jivan Tatiana Mihailovschi-Muntean Mauricio Soto Greg Wiles CENTER FOR RETIREMENT RESEARCH AT BOSTON COLLEGE Dana Ansel, Ph.D., MassINC Research Director Rachel Deyette Werkema, Ph.D., MassINC Deputy Research Director June 2004 A JOINT PROJECT OF: SPONSORED BY: MassINC THE MASSACHUSETTS INSTITUTE FOR A NEW COMMONWEALTH Publisher of CommonWealth magazine A Project of the Economic Prosperity Initiative June 2004 Dear Friend: MassINC is proud to present The Graying of Massachusetts: Aging, the New Rules of Retirement, and the Changing Workforce, a report produced in partnership with the Center for Retirement Research at Boston College and made possible by the generous support of Blue Cross Blue Shield of Massachusetts. MassINC is at the leading edge of a huge demographic shift to a much older population. At the same time, the rules of retirement have changed, shifting much of the responsibility onto individual families. This change occurs as many of the state’s 1.87 million Baby Boomers are getting ready to start retiring. Our research indicates that many people are not prepared for the new world and instead are falling through the cracks as the nature of pensions have rapidly changed from traditional pensions to employee-directed plans like 401(k)s. A stunning number of full-time workers do not have access to any form of 401(k) or other pension coverage from their current employer, and about one-quarter of those who have access to a 401(k) don’t use it. In addition, savings rates remain at historic lows, and the average 401(k) balance is relatively small for households approaching retirement. All of these changes point to a reversal of a 20-year trend. Since the mid-1980s, American workers have been retiring in their early 60s. Going forward, it is likely that workers will have to delay their retirement. There is a bit of a silver lining to this grim picture. It appears that Massachusetts residents are better equipped than their peers across the country to adjust to the new rules by working longer: Bay State residents are healthier, better educated, and our jobs are less physically demanding. Finally, the shift to an older population has huge implications for the Massachusetts labor market. Absent a substantial increase in new immigrants, there could be a shortage of prime-age workers. In Massachusetts, over the next 25 years, the number of people under age 55 will decline in absolute terms. Older workers may offer a way to stem the impending labor shortages, but a number of challenges exist be able to capitalize on this mutual interest. In presenting these findings, we owe a debt of gratitude to our partners: Alicia Munnell, Kevin Cahill, Andrew Eschtruth, Steven Sass and their colleagues who conducted the research. We would also like to thank the many reviewers whose critical insights have strengthened the final report. Lastly, we owe special thanks to Dana Ansel, MassINC’s Research Director, for her excellent work in conceptualizing this important research and shepherding it to such a successful conclusion. Finally, we would like to thank our sponsors at Blue Cross Blue Shield of Massachusetts, who have been generous and enthusiastic partners, encouraging the authors to go where the data led them. We hope you find The Graying of Massachusetts an informative and timely resource. We believe policymakers and civic leaders across the state should initiate a conversation about the implications of an aging Common- wealth. As always, we welcome your feedback and invite you to become more involved in MassINC. Sincerely, Ian Bowles Gloria Cordes Larson Peter Meade President & CEO Co-Chair Co-Chair TABLE OF CONTENTS EXECUTIVE SUMMARY . 5 Key Facts . 9 FINDINGS . 23 CHAPTER 1: Introduction . 27 CHAPTER 2: The Population is Graying Rapidly . 32 CHAPTER 3: Traditional Income Sources Will Fall Short . 39 CHAPTER 4: Older Non-Married Women Are Most At Risk . 55 CHAPTER 5: The Work-Retirement Divide . 63 CHAPTER 6: Will Older People Want to Work Longer? . 68 CHAPTER 7: Will Employers Want Older Workers? . 77 CHAPTER 8: Meeting the Challenge of An Aging Population . 98 ABOUT THE AUTHORS . 103 THE GRAYING OF MASSACHUSETTS 3 4 THE MASSACHUSETTS INSTITUTE FOR A NEW COMMONWEALTH Executive Summary Massachusetts is on a collision course. The While academics, policymakers, and advo- Bay State faces a huge demographic shift to a cacy organizations have been grappling with much older population. At the same time, the different pieces of this puzzle nationally, there rules of retirement that shaped our expectations has been little work at the state level. The shift of the “golden years” are in a state of transition. to a much older population poses both enor- Changes to Social Security and private pen- mous challenges and opportunities for Massa- sions mean that if workers want to maintain chusetts. The good news is that there is time. their standard of living, they will be forced to Because the most rapid increase of older Bay retire later than expected. And everyone will Staters is expected between 2010 and 2030, have to take more responsibility for managing there is a small but critical window for educa- their retirement savings. To add a dose of con- tion and planning. fusion, many of the state’s 1.87 million baby The purpose of this study is to begin the boomers who are on the brink of retirement process. This research focuses on three specif- will be caught in limbo between the new and ic questions: old rules of retirement. What does this demographic shift look like? The degree of change depends on a worker’s How well prepared are families for retirement? age. For example, the oldest boomers, who will How will this demographic shift impact the turn 63—the average age of retirement in Massachusetts labor market? Massachusetts—in less than five years, may not What we find is that Massachusetts, as the see a dramatic shift in their expected retirement 12th oldest state in the nation, is at the leading income. The younger boomers and subsequent edge of this coming age shift; indeed, some generations, however, will likely be forced to Massachusetts counties are already older than play by the new rules.

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