Many baby boomers plan to delay their retirement

WASHINGTON — A tidal wave of baby boomers will begin turning 62 next year, making them eligible for Social Security. How to keep this swell of beneficiaries from swamping the country's retirement system looms as one of the toughest questions confronting the new 110th Congress.

The answer hinges partly on how long boomers are willing to work and the incentives to keep them on the job. If they follow their parents' path to early retirement, the number of workers per retiree will plummet, reducing the tax base and squeezing budgets for Social Security and all other government programs.

New research suggests that aging boomers plan to work longer than people born just a dozen years earlier. If they do, the economy will pump out more goods and services and mitigate the economic pressures created by an aging population.

This good news bucks a century-long trend toward earlier retirement, which petered out about 20 years ago. Labor-force-participation rates for men 65 and older fell from 84 percent in 1870 to 46 percent in 1950 to 16 percent in 1990. In 2005, they inched back up to 20 percent.

Economic, demographic and social changes are transforming retirement incentives. Social Security reforms have boosted the normal retirement age to 67, deep-sixed penalties for Social Security beneficiaries who work past the normal retirement age and bolstered benefits for those who catch the Social Security train a bit farther down the line. All of the changes make work more lucrative.

Meanwhile, changes in employer-provided retirement benefits also promote employment. Between 1992 and 2004, the share of workers ages 51 to 56 with traditional pension plans fell from 40 percent to 31 percent while the share with 401(k)-type plans increased from 33 percent to 46 percent.

Traditional pension plans discourage work by making participants sacrifice a month of benefits for every month worked past the plan's retirement age. The 401(k) plans have no such penalty.

And nobody needs to remind workers that employer-sponsored retiree health benefits have plunged recently, raising the cost of stopping work before Medicare eligibility kicks in at 65.

Fewer physically demanding jobs also have an effect. As the manufacturing sector shrinks and workplace computerization continues, the demand for physical work lessens, making it easier for older workers to stay on the job longer. An educated workforce also tends to delay retirement; in 2004, 37 percent of workers ages 51 to 56 had completed college, up from 22 percent in 1992.