retirement

In the old days, according to popular allegory, you worked for a company most of your life. At retirement, that firm rewarded you with a pension, a guaranteed income for your golden years. These days, retirement planning is a bit more complicated. Fewer employers offer defined-benefit pension plans. Instead they require employees to parse byzantine literature and make life-altering choices for themselves. And more options are available than ever before.

The Pension Benefit Guaranty Corporation (PBGC) was created by Congress in 1974 to insure all private-sector pensions against employer bankruptcy and underfunding. By 2006, the PBGC was responsible for insuring pensions for 44 million working and retired Americans.

As the baby boomer generation reaches retirement age, U.S. policymakers are struggling to ensure the long-term viability of Social Security. In 1990 there were roughly five people of working age for every retiree; by 2035, that ratio is expected to diminish to three to one, according to the 2011 Social Security Board of Trustees report.

Economic theory predicts that in the short run, increased immigration in a competitive job market should lower workers’ wages.  Studies have been less conclusive, however, leading to research on how immigration affects workers with different skills or in different demographic categories.

The housing and investment crisis beginning in 2008 revealed some of the financial dysfunction in American households. Research has shown that those with lower financial literacy are less likely to have a checking account, emergency fund or retirement plan, and are more likely to take pay-day loans, pay only minimum credit card balances, take on unaffordable mortgages and carry debt.

The societal shift from defined retirement benefits (pensions) to contribution retirement savings mechanisms — for example, the 401(k) — has placed a greater burden on the decision-making capacity of Americans. As this dynamic continues to unfold, evidence suggests that many people are not making wise investment choices for their retirement money.

The U.S. Age Discrimination in Employment Act (ADEA) of 1967 prohibits bias against those 40 and older. Because the share of the aging population in the U.S. is expected to rise, the act’s role in maintaining and encouraging employment of older workers is likely to grow in importance.