Study finds obstacles to retirement

The leading edge of Massachusetts' 1.87 million baby boomers will reach retirement age in less than five years, but many who hoped to retire in their early 60s will be forced to work longer, because they won't have enough Social Security and other income, a study to be released tomorrow says.

Despite the relative prosperity of the state as a whole, about a third of full-time employees in Massachusetts lack any pension coverage. The Bay State has a below-average homeownership rate, meaning fewer retirees will be able to draw on that nest egg. The state's notoriously high cost of living makes it harder for everyone, especially fixed-income retirees.

"There is unfortunately every reason to believe that Massachusetts families approaching retirement age are without sufficient resources and will have to consider working well past age 63, the current average age of retirement," said the study by MassINC, a nonpartisan think tank.

Massachusetts ranks 12th in the country in the age of its residents. The state is part of a historic age shift affecting the entire country, including the labor force, retirement planning, and government resources for older people. Employers will have to adapt to an older workforce that will be more educated but also more expensive because of benefits. Workers will be forced to put together a retirement package from a dizzying array of options, many of which have changed in the last several years.

In 2000, 13.5 percent of the population in Massachusetts was older than 65, a portion that will increase to 18 percent in 2025. Barnstable County has the highest percentage of people over 65 years old in the state -- 23.1 percent of its population, far higher than Florida's 17.6 percent statewide average, the study said.

Nationwide, the under-55 population will remain fairly constant, in part because of a growth of younger immigrants, but Massachusetts will see a big drop in its under-55 population by the year 2010. In 2000, there were nearly 550,000 people in Massachusetts between ages 55 and 64. The number of people in that age group will jump to 834,000 by 2025, the MassINC researchers said.

"Massachusetts is on a collision course," the study said. "The Bay State faces a huge demographic shift to a much older population."

To some Bay State workers, who are part of the baby boom generation, born between 1946 and 1964, the reality of a longer wait for their golden years has sunk in.

"With prices skyrocketing like they are, you are going to have to wait until you're 70 years old to retire," said Tom Cumiskey, a 49-year-old house painter from Taunton who was shopping at a Dorchester supermarket last week. Cumiskey said he doesn't have a pension or substantial savings. "I don't have any retirement plans. I'm just going to have to work and work and work."

Andy Eschtruth of the Center for Retirement Research at Boston College, who cowrote the study, said the report "crystallizes a theme that was emerging in our research: People are going to have to work longer."

Eschtruth said that isn't all bad. As people live longer and healthier lives, he said, there is no reason that they can't work longer, and research has shown that they can reap psychological and social benefits from doing so.

Furthermore, a worker who stays on the job for a few extra years will have more time to build up a pension or 401(k) and will collect larger Social Security checks when he or she retires.

"We're not prophets of doom. We don't see work necessarily as bad," Eschtruth said. "There are many reasons to think that many workers would be just fine staying in the workforce."

On the plus side, several factors should make it easier for older people to keep working. Massachusetts has a healthier, better-educated workforce. The state has an abundance of jobs in universities, hospitals, and software companies that are not physically demanding. These jobs are generally paid better: The state's median income for full-time workers was just over $43,000 a year for men and $32,000 for women in 1999. Both are higher than the national average.

"In some ways, Massachusetts residents appear better equipped to handle the financial demands of old age," according to the study. "But ensuring retirement security for an aging population will still pose a major challenge in the decades ahead."

When the baby boom generation leaves the workforce in Massachusetts, the researchers found, the state may experience a labor shortage. The influx of younger, immigrants won't offset the trend.

The authors said that, while the federal government handles many of the issues raised by their research, the state's employers and government should help middle-aged workers prepare for their later years.

The study urges the state and employers to improve job-training opportunities for older workers, to ease the expected shortage and help more households save enough for retirement. It called on small businesses to form associations to offer group retirement plans and said small businesses should be allowed to participate in the state's pension plan. It also said the state, small businesses, and financial institutions should form a task force to help more small businesses to offer private pensions.

Andy Sum of the Center for Labor Market Studies at Northeastern University said it's especially important to help less-educated older workers, who are much less likely to remain in the workforce.

"They retire very early, and then they're very dependent on the rest of us to support themselves," Sum said. "It's in the interest of all of us to keep them more active in the labor market."

The report says the state should take the lead in educating employers about the coming shortage and the advantages offered by older workers.

"A lot of these discussions happen at the federal level, and there hasn't been much real attention closer to the ground, at the state level," said Ian Bowles, the president and CEO of MassINC. "Hopefully, one of the things this report will do is touch off some of that discussion."

Because of change in the minimum Social Security retirement age from 65 to 67 and changes in federal tax rules, baby boomers will get less in Social Security benefits than their parents did. As 401(k) plans rapidly replace traditional pensions, the burden is on workers to contribute, and many of them aren't putting in enough money or investing wisely. Further, the national household savings rate is at its lowest point since the Great Depression. Massachusetts is one of the few states in the nation whose public employees are not covered by Social Security, though they receive a state pension that is supposed to make up for the loss.

Increased prosperity, and the advent of Social Security and Medicare, spurred a steady decline in the average retirement age of US men, from 74 in 1910 to 63 today. The nation reached the current average 20 years ago, and evidence for 2000 to 2002 shows that more older workers are staying in the workforce, particularly in Massachusetts. It is unclear whether those workers are staying in the workforce because they want to or because they need to for financial reasons, the report said.

"Fading fast are the days when workers could retire in their early 60s knowing that two reliable monthly checks -- one from Social Security and one from an employer pension plan -- would by themselves provide most of the income they needed," the report states. "Baby boomers and younger generations will need to save more on their own in advance, make smarter decisions about building up and drawing down their 401(k)s, and consider working to an older age than their parents did."

Those who do want to retire at an early age and have jobs that offer 401(k) plans would do well to pay more attention to them, according to the study. Since 1992, the percentage of Americans with 401(k)s or other tax-deferred retirement accounts, as opposed to traditional pensions funded entirely by employers, has exploded. Of those households with some kind of retirement plan, the percentage with traditional pensions has dropped from 40 percent to 20 percent, while those with tax-deferred accounts has jumped from 38 percent to 58 percent.

Workers with pensions don't have to think about them -- employers automatically contribute, above and beyond the employee's salary. Tax-deferred accounts shift the responsibility to workers, who have to choose whether to participate, how much they want to invest, and how to spread out their investments. Nationally, one-quarter of eligible workers do not participate in a plan.

"A lot of firms have worked very hard to encourage their employees to participate, especially the younger workers. But it's a real challenge in some cases to convince younger workers to make any kind of investment in their funds," said Brian Gilmore of Associated Industries of Massachusetts.

With a 401(k), the report states, "the entire burden is on employees, and many make mistakes at every step along the way."

Globe correspondent Elise Castelli contributed to this report.