[IMGCAP(1)]In its way, the notion of retiring at 65 is as hallowed as the more official parts of the American dream. Like owning your own home, it has entered the short list of things all right-thinking people desire, and deserve. If it's not officially enshrined in the Bill of Rights, that is a mere oversight; most people consider themselves as entitled to kick back and relax in their 65th year as they are to speak freely, assemble as they wish, and so on.
Yet perhaps it's time to re-examine that notion, just as we have begun to re-examine the supposedly boundless benefits of owning your own home (assuming it's not underwater, at least). Just as we are coming to recognize that home ownership is not always an unalloyed good, we should inspect some of our thinking about retirement, and the form in which we expect it to come.
Obviously, I'm not suggesting we should banish retirement, and all work our way into the grave. But given the current economic climate, the decline of the defined-benefit pension, the woeful inability of most Americans to plan for their own future, and the near-impossibility of our being able to pay for the sort of old-age entitlements we have promised ourselves, it's time to start considering a tweak or two.
Specifically, let's talk about the retirement age. There is nothing magical about age 65; it is not, as far as I know, biblically sanctioned, and has no mathematical, biological, astronomical or astrological significance. We do not retire at 65 because that's the right age to retire.
No, the Internet tells us 65 was chosen as the retirement age when the government was setting up Social Security because, given the number of expected beneficiaries at the time, and the amount of benefits to be given at the time, it was the age at which the system would work—if the age was set any younger, the system wouldn't have been able to make payments. (The first modern pension system, in Bismarck's Germany, chose 70 as the retirement age—which was within a year or two of the life expectancy of the average German citizen, thus keeping costs down.)
Now, having had that age constantly repeated to us for three quarters of a century, we all fully expect to retire at 65—even though our life expectancies have grown enormously, our savings rate has declined precipitously, and our family structures have changed uncomfortably, so that we can't always rely on a corner by the fire.
The recent economic unpleasantness has started to make it clear, however, that 65 isn't going to happen for many people—their portfolios are just too devastated. A recent study from Boston College's Center for Retirement Research says that less than half of American workers will have enough money save to retire at 65—but then notes that if they work until they are 70, 86 percent will be able to retire.
For generations raised on the promise of rest at 65, those extra five years may seem like a betrayal—but then, when those promises were set up, we didn't live as long as we do now. Even if you give up those five years, you're still likely to live longer in retirement than those early Social Security recipients, thanks to the miracles of modern medicine and better nutrition.
And if the money isn't there, it isn't there; betrayal or not, the simple fact is that many would-be retirees will have to work for longer than they expected.
Pros and Cons
Let's leave the possible broad ramifications of this major change to others, and focus here on what it means for accountants.
Partners who expected to retire (or who were expected by others to retire) may find themselves rethinking that decision, and hoping to stay on until their finances are in better shape. Firms that have a mandatory retirement policy may want to consider it—or may be pressured to reconsider it by a cadre of Baby Boomer partners who would feel a lot happier with a few more years to shore up their savings.
There are a lot of pros and cons to this; we're going to suggest just a few, and then solicit your ideas on the subject.
• Some pros. A lot of experience that was supposed to walk out the door doesn't need to. We're seeing lots of leadership changes where the former managing partner doesn't take their accumulated expertise into the sunset, but directs it toward business development, client service and other areas that need high-level focus. With talent hard to find, it's a bonus. Plus, those few who didn't want to retire in the first place can get a reprieve.
• Some cons. If partners don't vacate the spots at the top, then younger staff can't move up. This kind of traffic jam could send them out to form their own firms, creating just the kind of competition retiring partners can't afford. It also means old leadership staying in place longer, which can make it hard for firms to change, adapt and grow—we have heard plenty of anecdotal evidence of a number of firms suffering from their owners' inability to let go.
This is a relatively new issue, with a lot of facets. Let us know what you think—leave a comment below, take our poll on whether accounting firms should have mandatory retirement ages in our LinkedIn group, or send us a Letter to the Editor.