Medicare on life support: will it survive?

This Issue Brief discusses Medicare reform. The Balanced Budget Act of 1997 reduces spending in the Medicare program by $115 billion between 1998 and 2002. Most of the reduction in spending comes from reducing payments to providers, and most of the savings (36 percent) occur in 2002. By 2007, the Part A trust fund is expected to be insolvent, four years before the baby-boom generation reaches the current Medicare eligibility age of 65. Congress is likely to revisit Medicare reform in the near future. A number of reforms received a significant amount of attention during the Medicare reform debate, but were not included in the final legislation. The Senate-passed legislation would have increased the Medicare eligibility age from 65 to 67, imposed means testing on Medicare Part B, and imposed a Part B home health copayment of $5. While these provisions were not included in the Balanced Budget Act of 1997, they may be the focal point of future Medicare reform. Many changes to the Medicare program are likely to significantly affect employment-based health plans for both active and retired workers. Raising the Medicare eligibility age would undoubtedly affect both workers and retirees. Unless workers are willing to work until age 67, their likelihood of becoming uninsured would increase. In 1995, 15.8 percent of retirees ages 55-64 were uninsured, compared with 11.5 percent of workers in the same age group. Early retirees might also find themselves unable to afford health insurance in the private market. An Employee Benefit Research Institute/Gallup poll indicates a direct link between the availability of retiree health benefits and a worker's decision to retire early. In 1993, 61 percent of workers reported that they would not retire before becoming eligible for Medicare if their employer did not provide retiree health benefits. If workers responded to an increase in the retirement age by working longer, employment-based health plans would probably experience an increase in costs, because older workers are the most costly to cover. Some employers might respond to an increase in the Medicare eligibility age by dropping coverage altogether. The message for future beneficiaries is becoming very clear: expect less from Medicare at later ages and higher premiums. As was true prior to the enactment of Medicare in 1965, workers will increasingly need to include retiree health insurance as an expected expense as they plan and save for retirement.     

The retirement system in transition: the 2007 Retirement Confidence Survey

WORKERS SLOW TO SEE OR ADAPT TO A CHANGING U.S. RETIREMENT SYSTEM: The 17th annual wave of the Retirement Confidence Survey (RCS) suggests that American workers may be slow to recognize how the U.S. retirement system is changing, and those who are aware of these changes may not be adapting to them in ways that are likely to secure them a comfortable retirement. HALF OF WORKERS LESS CONFIDENT ABOUT PENSION BENEFITS: The RCS finds pension-plan changes by employers have left nearly half of workers less confident about the benefits they will receive from a traditional pension plan, but that those experiencing a decline in retirement benefits often fail to react constructively. Moreover, although Americans will rely increasingly on 401(k) retirement savings plans and other personal savings and investments to fund their retirement security, data suggest that many may not follow professional investment advice when it is offered to them. MANY WORKERS COUNTING ON BENEFITS THAT WON'T BE THERE: Many workers are counting on employer-provided benefits in retirement that are increasingly unavailable. Only 41 percent of workers indicate they or their spouse currently have a defined benefit pension plan, yet 62 percent say they are expecting to receive income from such a plan in retirement. Likewise, workers are as likely to expect as retirees are to receive retiree health insurance through an employer, even though the number of employers offering this benefit to future retirees is declining. MANY WORKERS UNLIKELY TO HEED INVESTMENT ADVICE EVEN IF THEY GET IT: More than half of workers indicate they would be likely to take advantage of professional investment advice offered by companies that manage employer-sponsored retirement plans. However, two-thirds of these workers say they would probably implement only some of the recommendations they receive and 1 in 10 think they would implement none of them. AMERICANS OVERESTIMATE LONG-TERM CARE COVERAGE: One-quarter of workers and more than one-third of retirees report they have long-term care insurance (separate from health insurance, Medicare, and Medicaid) to help pay for care they might need in a nursing home, assisted living facility, or at home. But only 10 percent of Americans age 65 and older are estimated to have had private long-term care insurance in 2002, suggesting that many are counting on coverage they do not actually have. MOST SAVINGS LEVELS ARE MODEST: Almost half of workers saving for retirement report total savings and investments (not including the value of their primary residence or any defined benefit plans) of less than $25,000. The majority of workers who have not put money aside for retirement have little in savings at all: Seven in 10 of these workers say their assets total less than $10,000. CONTINUED IGNORANCE ABOUT SOCIAL SECURITY COVERAGE: Despite the longstanding increase in the eligibility age for Social Security, only a small minority of workers are aware of the age at which they can receive full retirement benefits from Social Security without a reduction for early retirement.     

Questions and answers on employee benefit issues

This Issue Brief addresses 19 topics in the areas of pensions, health insurance, and other benefits. In addition to the topics listed below, the report includes data on the prevalence of benefits, tax incentives associated with benefits, lump-sum distributions, number of private pension plans, pension coverage rates, 401(k) plans, employer spending on group health insurance, self-insured health plans, employer initiatives to reduce health care costs, and employers' response to the retiree health benefits accounting rule, and flexible benefits plans. In 1992, U.S. employers (public and private) spent $629 billion for noncash benefits, representing nearly 18 percent of total compensation, excluding paid time off. In 1992, 71 percent of the 50.1 million individuals aged 55 and over received retirement benefits, including distributions from private and public pensions, annuities, individual retirement accounts, Keoghs, 401(k)s, and Social Security. Among the 76 percent of all private pension plan participants who participated in a single plan, 30 percent named a defined benefit plan as their pension plan type, 58 percent named a defined contribution plan as their pension plan type, and 12 percent did not know their plan type. Private and public pension funds held more than $4.6 trillion in assets at the end of 1993. The 1993 year-end assets are more than triple the asset level of 1983 (nominal terms). According to the Congressional Budget Office, U.S. expenditures on health care were expected to have reached $898 billion in 1993, up from $751.8 billion in 1991, an increase of 19.4 percent in nominal terms.     

Demographic and employment shifts: implications for benefits and economic security

This Issue Brief examines factors affecting the population's age distribution and composition, such as mortality rates, fertility rates, and immigration. In addition, it examines factors affecting labor force composition, such as immigration, increased labor force participation of women, and retirement trends, and discusses the potential impact of these changes on publicly financed programs: Medicare, Medicaid, Social Security, and federal employee retirement systems. The discussion also highlights the implications of these population and labor force changes on employers, employees, and retirees. The elderly population--now 31.8 million, representing 12.6 percent of the population--is projected to experience tremendous growth between 2010 and 2030, when the baby boom generation reaches age 65, rising from 39.7 million, or 13.3 percent of the population, to 69.8 million, or 20.2 percent of the population. Growth in the elderly population has implications for retirement and health care systems. Population projections suggest that the traditionally pyramid-shaped work force, with a proportionately greater number of younger workers than older workers, will be replaced with a more even age distribution. Consequently, significant and continued modifications to benefit packages, such as changes in compensation structures in which earnings automatically rise with age, are likely to occur. Women's labor force participation began to accelerate in the mid-1950s, rising 75 percent among women aged 25-44 in 1991, although there is some indication that this growth may be flattening. With women comprising a greater part of the labor force, employers will be encouraged to develop and implement programs to better accommodate their needs. Increased life expectancy, a decreased percentage of entry level workers, changes in Social Security's normal retirement age from 65 to 67, and employer plans to raise the normal age of retirement or provide incentives to delay retirement, could raise the average age of retirement. However, other factors, such as poor health, other sources of retirement income, and individual preferences for retirement, could still dominate the retirement decision. The combination of increased average life expectancy guaranteeing more years of retirement to finance and rising dependency ratios increases the future cost of Social Security financing. Medicare financing is also an important policy issue because the program is projected to experience financial difficulties in the short term, resulting from explosive health care costs. In addition, Medicaid expenditures are consuming increasing amount of shrinking state budget resources--a large portion of which is used to finance nursing home care for a growing elderly population.     

Baby boomers in retirement: what are their prospects?

This Issue Brief examines the baby boomers' retirement income prospects by analyzing trends in the elderly's income and pension participation among workers; examining saving behavior and critically evaluating studies of the adequacy of the boomers' saving; and looking at tenure trends, lump-sum distribution preservation, and changes in Social Security benefits. Since the mid 1970s, the real median income of individuals aged 65 and over has increased 18 percent. Sources of income have shifted, with employment-based pensions increasing and earnings and asset income decreasing as a proportion of income. The boomers' prospects are partly dependent on participation in employment-based retirement plans. After decreases in the sponsorship rates, participation rates, and vesting rates of workers during the 1980s, all three percentages increased during the early 1990s. Data do not support the perception that the U.S. work force is becoming increasingly mobile. Tenure levels for prime age workers in the 1980s and beginning of the 1990s were higher than those of previous decades. Still, in response to competitive pressures, employers may not offer the security of paternalistic benefit packages as in the past. Various studies have reached different conclusions regarding the adequacy of the boomers' financial preparation for retirement. Evidence indicates that boomers, in general, will enjoy a retirement standard of living exceeding that of their parents. It is less clear whether they will maintain a standard of living in retirement comparable to that of their working years. To the extent they are willing to tap housing wealth, they would appear at this early stage to be in good shape. Federal fiscal policy decisions will impact boomers by affecting their disposable income today, and thus their ability to save, as well as the benefits they will receive in retirement through Social Security and Medicare. The boomers are 17 to 35 years away from age 65. Given heterogeneity of the boomers, research is needed to identify what specific groups within the generation are at risk and the magnitude of that risk. Groups that would now appear to be at risk to some degree include non-homeowners, the less educated, the single, and the youngest boomers.     

The 2012 Retirement Confidence Survey: job insecurity, debt weigh on retirement confidence, savings

Americans' confidence in their ability to retire comfortably is stagnant at historically low levels. Just 14 percent are very confident they will have enough money to live comfortably in retirement (statistically equivalent to the low of 13 percent measured in 2011 and 2009). Employment insecurity looms large: Forty-two percent identify job uncertainty as the most pressing financial issue facing most Americans today. Worker confidence about having enough money to pay for medical expenses and long-term care expenses in retirement remains well below their confidence levels for paying basic expenses. Many workers report they have virtually no savings and investments. In total, 60 percent of workers report that the total value of their household's savings and investments, excluding the value of their primary home and any defined benefit plans, is less than $25,000. Twenty-five percent of workers in the 2012 Retirement Confidence Survey say the age at which they expect to retire has changed in the past year. In 1991, 11 percent of workers said they expected to retire after age 65, and by 2012 that has grown to 37 percent. Regardless of those retirement age expectations, and consistent with prior RCS findings, half of current retirees surveyed say they left the work force unexpectedly due to health problems, disability, or changes at their employer, such as downsizing or closure. Those already in retirement tend to express higher levels of confidence than current workers about several key financial aspects of retirement. Retirees report they are significantly more reliant on Social Security as a major source of their retirement income than current workers expect to be. Although 56 percent of workers expect to receive benefits from a defined benefit plan in retirement, only 33 percent report that they and/or their spouse currently have such a benefit with a current or previous employer. More than half of workers (56 percent) report they and/or their spouse have not tried to calculate how much money they will need to have saved by the time they retire so that they can live comfortably in retirement. Only a minority of workers and retirees feel very comfortable using online technologies to perform various tasks related to financial management. Relatively few use mobile devices such as a smart phone or tablet to manage their finances, and just 10 percent say they are comfortable obtaining advice from financial professionals online.     

Retirement plan participation and features and standard of living of Americans 55 or older

This Issue Brief is the third in a series of Employee Benefit Research Institute (EBRI) publications based on data collected in 1998 and released in 2002 as the Retirement and Pension Plan Coverage Topical Module of the 1996 Survey of Income and Program Participation (SIPP). This report completes the series by examining the survey's more detailed questions concerning workers' employment-based retirement plans. Specifically, it examines the percentage of workers who are participating in a plan, and also workers' reasons for not participating in a plan when working in a job where a plan is sponsored; the features of, or decisions made concerning salary reduction plans; historical participation in employment-based retirement plans; and a comparison of the standard of living of individuals age 55 or older with their living standard in their early 50s. As of June 1998, 64.3 percent of wage and salary workers age 16 or older worked for an employer or union that sponsored any type of retirement plan (defined contribution or defined benefit) for any of its employees or members (the "sponsorship rate"). Almost 47 percent of these wage and salary workers participated in a plan (the "participation rate"), with 43.2 percent being entitled to a benefit or eligible to receive a lump-sum distribution from a plan if their job terminated at the time of survey (the "vested rate"). The predominant reason for choosing not to participate in a retirement plan was that doing so was unaffordable. The eligible participation rate for salary reduction plans was 81.4 percent. Fifty-six percent of all workers have participated in some type of retirement plan sometime during their work life through 1998. For those ages 51-60, almost 72 percent have ever participated in a plan. The median account balance in salary reduction plans in 1998 was $14,000. In 1998, 12.9 percent of salary reduction plan participants eligible to take a loan had done so, and the average outstanding loan balance was $5,196. Nearly 80 percent of those age 55 or older reported that their standard of living is about the same or better now than it was when they were in their early 50s. The incidence of both pension income and health insurance from a former employer had a significant impact on retirees' ability to maintain their standard of living. In addition, those who spent their entire most recent lump-sum distribution were more likely to have a much worse standard of living in retirement than those who rolled over their entire most recent distribution.     

Defined contribution health benefits

This Issue Brief discusses the emerging issue of "defined contribution" (DC) health benefits. The term "defined contribution" is used to describe a wide variety of approaches to the provision of health benefits, all of which have in common a shift in the responsibility for payment and selection of health care services from employers to employees. DC health benefits often are mentioned in the context of enabling employers to control their outlay for health benefits by avoiding increases in health care costs. DC health benefits may also shift responsibility for choosing a health plan and the associated risks of choosing a plan from employers to employees. There are three primary reasons why some employers currently are considering some sort of DC approach. First, they are once again looking for ways to keep their health care cost increases in line with overall inflation. Second, some employers are concerned that the public "backlash" against managed care will result in new legislation, regulations, and litigation that will further increase their health care costs if they do not distance themselves from health care decisions. Third, employers have modified not only most employee benefit plans, but labor market practices in general, by giving workers more choice, control, and flexibility. DC-type health benefits have existed as cafeteria plans since the 1980s. A cafeteria plan gives each employee the opportunity to determine the allocation of his or her total compensation (within employer-defined limits) among various employee benefits (primarily retirement or health). Most types of DC health benefits currently being discussed could be provided within the existing employment-based health insurance system, with or without the use of cafeteria plans. They could also allow employees to purchase health insurance directly from insurers, or they could drive new technologies and new forms of risk pooling through which health care services are provided and financed. DC health benefits differ from DC retirement plans. Under a DC health plan, employees may face different premiums based on their personal health risk and perhaps other factors such as age and geographic location. Their ability to afford health insurance may depend on how premiums are regulated by the state and how much money their employer provides. In contrast, under a DC retirement plan, employers' contributions are based on the same percentage of income for all employees, but employees are not subject to paying different prices for the same investment.     

Encouraging workers to save: the 2005 Retirement Confidence Survey

This Issue Brief reports findings of the 15th annual Retirement Confidence Survey (RCS), which points to potential solutions to the American retirement savings problem, specifically ways that could help workers save more through their employment-based retirement plans. IMPORTANCE OF EMPLOYER MATCH: More than 7 in 10 workers not currently contributing to their employer-sponsored retirement plan say an employer contribution of up to 5 percent of their salary would make them much more or somewhat more likely to participate (72 percent). SIMPLIFIED OPTIONS: Other retirement plan options that nonparticipants say would make them more likely to contribute are an investment option that automatically becomes more conservative as their retirement date approaches (66 percent) and a feature that automatically raises workers' contributions by a fixed amount or percentage when they receive a pay raise (55 percent). Two-thirds of nonparticipants indicate they would be very or somewhat likely to remain in their employer's plan if they were automatically enrolled (66 percent). SOCIAL SECURITY: Nearly 7 in 10 of today's workers are skeptical that Social Security will continue to provide benefits of at least equal value to those received by current retirees (68 percent). This proportion has remained relatively constant in recent years, but is below the 1995 level (79 percent). Workers continue to be unable to identify the age at which they will be eligible for full Social Security benefits. MOST BEHIND SCHEDULE IN SAVING: A majority of workers believe they are behind schedule when it comes to planning and saving for retirement (55 percent). Most of those behind schedule say that high expenses, particularly everyday expenses (49 percent), child-rearing expenses (39 percent), and medical costs (35 percent), are a major factor in keeping them from saving. LESS THAN HALF HAVE TRIED TO CALCULATE NEEDED SAVINGS: Approximately 4 in 10 workers say they have tried to calculate how much they need to accumulate for retirement. More than one-third of these workers say they asked a financial advisor to calculate this number or used their own estimates; 10 percent say they simply guessed how much they will need in retirement.     

The impact of deferring retirement age on retirement income adequacy

UPDATE OF RSPM-POST-65 RETIREMENT AGES: The EBRI Retirement Security Projection Model (RSPM) was developed in 2003 to provide an assessment of national retirement income prospects. The 2011 version of RSPM adds a new feature that allows households to defer retirement age past age 65 in an attempt to determine whether retirement age deferral is indeed sufficiently valuable to mitigate retirement income adequacy problems for most households (assuming the worker is physically able to continue working and that there continues to be a suitable demand for his or her skills). The answer, unfortunately, is not always "yes," even if retirement age is deferred into the 80s. LOWEST-INCOME LEVELS, 50-50 CHANCE OF ADEQUACY: RSPM baseline results indicate that the lowest preretirement income quartile would need to defer retirement age to 84 before 90 percent of the households would have a 50 percent probability of success. Although a significant portion of the improvement takes place in the first four years after age 65, the improvement tends to level off in the early 70s before picking up in the late 70s and early 80s. Households in higher preretirement income quartiles start at a much higher level, and therefore have less improvement in terms of additional households reaching a 50 percent success rate as retirement age is deferred for these households. LOWEST-INCOME LEVELS, HIGHER CHANCES OF ADEQUACY: If the success rate is moved to a threshold of 70 percent, only 2 out of 5 households in the lowest-income quartile will attain retirement income adequacy even if they defer retirement age to 84. Increasing the threshold to 80 percent reduces the number of lowest preretirement income quartile households that can satisfy this standard at a retirement age of 84 to approximately 1 out of 7. IMPORTANCE OF DEFINED CONTRIBUTION RETIREMENT PLANS: One of the factors that makes a major difference in the percentage of households satisfying the retirement income adequacy thresholds at any retirement age is whether the worker is still participating in a defined contribution plan after age 65. This factor results in at least a 10 percentage point difference in the majority of the retirement age/income combinations investigated. FACTORING IN RETIREMENT HEALTH COSTS: Another factor that has a tremendous impact on the value of deferring retirement age is whether stochastic post-retirement health care costs are excluded (or the stochastic nature is ignored). For the lowest preretirement income quartile, the value of deferral (in terms of percentage of additional households that will meet the threshold by deferring retirement age from 65 to 84) decreases from 16.0 percent to 3.8 percent by excluding these costs. The highest preretirement income quartile experiences a similar decrease, from 12.8 percent to 2.6 percent.     

Employment-based health benefits: analysis of the April 1993 Current Population Survey

The April 1993 CPS differs from the March 1993 CPS in a number of respects. The April 1993 CPS supplement surveys only workers, whereas the March CPS examines the noncash benefits received by all Americans. The April CPS asks workers about health coverage in the week in which the questions were fielded, whereas the March CPS asks about coverage in the preceding year. In April 1993, there were 112.5 million civilian American workers between the ages of 18 and 64 with jobs. Eighty-two million (73 percent) of them worked for an employer that sponsored a health insurance plan, and 65 million (58 percent of all workers) participated in their employer's health plan. About one-third of workers at firms with fewer than 10 employees had employers who offer health benefits; about one-quarter of all of the workers in these firms participated in their employer's plan. Conversely, 94 percent of workers at firms with more than 1,000 employees had an employer who sponsored health benefits, and over 77 percent of these workers participated in their employer's plan. There are 16.5 million American workers whose employers sponsored health benefits but who did not participate in these benefits. Over one-half of these workers (8.5 million) chose not to be covered. Another 36 percent of these workers (5.9 million) did not participate because they were ineligible or denied coverage. Over 66 percent of the ineligible workers did not participate because they were part-time, contract, or temporary workers. Another 26 percent had not yet completed a probationary period. Among the reasons that those who chose not to participate in their employer's coverage, the vast majority (75 percent) stated they were covered by another health care plan. Twenty-nine percent stated that they chose not to purchase coverage because it was too costly or that they did not need or want the coverage. In 1993, there were 16.7 million workers with no health insurance coverage. The vast majority of these workers (95 percent) were employed by private employers. Sixty-six percent of the workers with no health insurance coverage were self-employed or worked for firms with fewer than 100 employees.     

The Selection of Partial or Full Retirement by Older Workers

The study investigated whether older workers chose partial or full retirement instead of full-time work. Partial or full retirement status was modeled as a combination of self-reported retirement status and change in number of hours worked. The results of multinomial logistic regression using data from the first and fifth waves of the Health and Retirement Study collected in 1992 and 2000 showed that age and gender had similar effects on the likelihood of partial and full retirement. Full retirement was also influenced by investment assets, pensions, employee health insurance, and poor health. The likelihood of partial retirement was also influenced by self-employment, chronic health conditions, and education. Workers who seek partial retirement need working conditions that allow them to make this choice.     

The evolution of retirement: results of the 1999 Retirement Confidence Survey

The ninth annual Retirement Confidence Survey (RCS) shows continued evidence of progress in the drive for retirement income security for American workers. However, there are still hurdles to overcome. The RCS tracks Americans' retirement planning and saving behavior and their confidence regarding various aspects of their retirement. It also categorizes workers and retirees into distinct groups based on their individual views on retirement, retirement planning, and saving. The retirement envisioned by today's workers looks different in many respects from that now experienced by current retirees. Today's workers expect to work longer than current retirees actually worked before retiring--and many say they plan to work for pay after they retire. Twenty-four percent of workers reported that they are very confident they will have enough money to live comfortably in retirement, and 45 percent reported that they are somewhat confident. However, there are indications that many may be falsely confident. The good news is that 70 percent of Americans are saving for retirement, and a growing percentage (49 percent) are going further and determining how much they need to save to fund their retirement. The bad news is that 30 percent of Americans have not begun to save for their retirement, and 51 percent have never tried to determine how much they need to save. Employers play a major role in ensuring adequate retirement preparation. Forty percent of all workers said they expect that money provided by their employer will be a major source of retirement income. Forty-six percent expect the money they put into a retirement plan at work to be a major source of income. The availability of a retirement plan at work is credited by 48 percent of savers as motivation to save. While worker education is a point of emphasis among both employers and policymakers, more remains to be done. For example, 59 percent of workers expect to be eligible for full Social Security benefits sooner than they actually will be, and an additional 19 percent admit they do not know when they will be eligible. There is evidence that education can have an impact on individual behavior. Forty percent of workers receiving educational material at work in the last year said that information caused them to begin saving (19 percent) or resume saving (21 percent) for retirement, while 40 percent said they changed the amount they were contributing to a retirement savings plan and 41 percent changed the allocation of their money in a retirement savings plan.     

EBRI research highlights: health benefits

The Employee Benefit Research Institute (EBRI) is a nonpartisan, nonprofit public policy research organization based in Washington, DC, that has been researching economic security issues for almost 25 years. Founded in 1978, its mission is to contribute to, encourage, and enhance the development of sound employee benefit programs and sound public policy through objective research and education. EBRI does not lobby and does not take positions on legislative proposals. EBRI receives funding from individuals, employers of all types, unions, foundations, and government. EBRI's research work has focused on retirement- and health-related issues, particularly involving pension/retirement plan coverage and health insurance coverage in the employment-based benefits system. EBRI is a major source of unbiased data on the uninsured and current trends involving 401(k), IRA, and traditional pension-type retirement plans. EBRI research programs also include economic modeling of Social Security reform proposals and development of the EBRI/ICI 401(k) database, the largest and most detailed of its kind. This EBRI Special Report/Issue Brief (May 2003) synthesizes highlights of recent EBRI research on health issues. The next Issue Brief (June 2003) will present recent EBRI research on retirement benefits. It should be stressed that this document contains only highlights of EBRI's collection of research and analysis; for greater detail and information, visit EBRI's Web site (www.ebri.org) or contact EBRI directly.     

Social Security Reform Ideas in Japan

Abstract

Japan has a complex social security system. This article discusses the demographic and economic situation in Japan as background for understanding the setting in which the social security system functions. Japan has a three-pillar system for retirement income. The first pillar is the social security pension plan; the second pillar is the voluntary occupational pension plan; and the third pillar is personal savings, including the personal pension plan. The most important part of the retirement income system is the social security pension plan, which paid benefits accounting for 64% of the total income of elderly households in 1998. The five Employees' Pension Plans are established on a compulsory social insurance basis. Most large Japanese employers have a mandatory retirement age. Over 90% of all employees, including public sector ones, must retire from their career jobs at age 60.     

Social security reform ideas in Japan

Japan has a complex social security system. This article discusses the demographic and economic situation in Japan as background for understanding the setting in which the social security system functions. Japan has a three-pillar system for retirement income. The first pillar is the social security pension plan; the second pillar is the voluntary occupational pension plan; and the third pillar is personal savings, including the personal pension plan. The most important part of the retirement income system is the social security pension plan, which paid benefits accounting for 64% of the total income of elderly households in 1998. The five Employees' Pension Plans are established on a compulsory social insurance basis. Most large Japanese employers have a mandatory retirement age. Over 90% of all employees, including public sector ones, must retire from their career jobs at age 60.     

Low Confidence in Social Security Is Not Warranted

The public's low confidence in Social Security is unwarranted. Social Security as discussed here means the old-age, survivors, and disability insurance program (OASDI) but does not include Medicare. Its financial condition is excellent in the short range and sound in the long range, based on intermediate-cost estimates. Those who believe otherwise are too pessimistic about our demographic and economic future. The OASDI cost rates are expected to remain at today's level for the next three decades, and will rise starting about 2020. The cost rates are expressed as a percentage of taxable payroll. Because the taxable payroll as a proportion to total compensation is projected to decline, the cost rates in the future will rise even when benefit payments do not. This problem could be solved by a method that effectively taxes total compensation at a constant percentage rate. Another reason for cost rates to rise is population aging. It is possible to reduce the cost rates if educational and work environments are made more hospitable to long worklives. Although population aging is a basic reason for OASDI costs to increase, only about two thirds of such costs are for retirement benefits. The rest is for disabled workers and families of workers.