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Downshifting into Retirement--Lessons from Japan
 I'm sure you will all agree there's no more reassuring voice in retirement planning than Dennis Hopper. After decades of playing drug-crazed hippies (Easy Rider), psychotics (Blue Velvet) and town drunks (Hoosiers, Rumble Fish), he has found his calling. He beckons us on the road to another kind of retirement retirement, saying "I just don't see you playing shuffleboard, you know what I mean?" Which brings us to this question, what do we see ourselves doing in retirement? One answer is what Vanguard Retirement Research calls "Downshifting"-reducing hours or shifting to a less stressful or simpler job, or one you just might enjoy doing. In the face of social security jitters, loss of defined benefit pensions and the generally modest 401K balances intended to replace them, more people are downshifting and fewer take the path of a standard early retirement and just completely stop working.
Statisticians tell us that 11,000 people a day are retiring in the US, and the average age at first retirement is 57 and a half. Yes I said 1st. The new norm is multiple retirements. In addition, Vanguard research indicates sixty-two percent (62%) of those entering their mid fifties plan to work in retirement.
All this interest makes a compelling case for making some things happen to make downshifting more feasible for those who are want to pursue it. Still not convinced? How about the doing it for the good of all of us?
It is clear that it would serve the common good for baby boomers to continue to work. The more we delay receipt of social security benefits and extend the period in which the boomers pay into social security, the better off that fund is. Also, greater financial independence on the part of those entering their later years means less dependence on government assistance in retirement. Finally, it just makes good economic sense-it leads to efficient utilization of the skills and brain power of this aging generation.
As you might imagine, change like this does not just happen because the universe notices it's what people want. We have to do something to move it along.
So, where do we look for ideas on how to make this happen? A quick glance at Western Europe tells us there is no answer there. In fact, our planners see our own dismal future there--a growing population relying on government pensions and medical care and a shrinking work force to pay for it all. Labor force participation among those 60 and over is only 5% in France, 7% in Italy and 10% in Germany. Here in the U.S., we worry when only 25.6% of people over 60 remain in our labor force. Ah, but Japan has the highest rate among industrialized countries-30.1%. When you drill down, you find that most of the difference lies in males who continue their work force participation to a later age. In Japan, more than forty percent (40%) remain in the work force after 60 as compared to the U.S., where thirty percent (30%) do so.
Why the difference? Researchers at Boston College have identified five reasons for the high participation among men over sixty in Japan- they are:
- Economic need
- Type of employment available
- Cultural values
- Health, and
- Policy factors
Let's look at each of thes in turn, beginning with Economic Need.
Economic need is most evident when you look at Japan's retirement system-there are 2 pieces--the employers' pension and the public pension. Each replaces about 30% of pre-retirement income. The hitch is that most employers' plans have mandatory retirement at age 60, and the public pension does not kick in until 65. This gap produces a need. Other factors, according to surveys, include a desire to maintain the same life style they enjoyed in their 50's, and, according to custom in Japan, providing for education and housing loans for their grandchildren. Back in the U.S., similar motives for maintaining lifestyle, coupled with the disappearance of defined benefit retirement plans are driving an increased interest among older Americans in remaining active in the work force.
The Next Cause is the Type of Employment available. The majority, just over 51%, of workers 65 and over in Japan are self-employed. The predominance of self-employment among Japanese older workers suggests it isn't necessarily easier for their workers to find work-they just invent it themselves. Only about twenty-three percent of American men working at 65 and over are self-employed.
Cultural Values are another reason for differences between the two countries. The Japanese place a high value on remaining a productive member of society. A glimpse of this difference in attitudes can be found in surveys of men in both countries, when men were asked what year a man should leave the work force, more than 30% of Japanese men said age 70, that is twice the number of U.S. men who gave 70 as their answer. U.S. society is much more accepting of older workers completely withdrawing from the work force. But remember, Dennis Hopper tells us the times they are a-changing, and we "aren't just headed for bingo night" in retirement. Many aging Americans plan to work-whether in public and community service or in a paying career.
Health is another factor, Japanese men have a healthy life expectancy, defined as "life-expectancy free from disability" of 75, vs. U.S. men whose healthy life expectancy is 69.3 years. If the generation coming of age today has lived a healthier life-for example, statistics say many quit smoking in the U.S. while it is still prevalent in Japan, this gap may narrow in the future.
Policy factors are the last cause on the list, but not the least important. The Japanese government has undertaken a number of initiatives to make it easier for older workers to continue working.
- They are changing the regulatory framework for mandatory retirement age.
- They are assisting older workers in their efforts to find new jobs for themselves and subsidizing employer efforts to find new jobs for them.
- The government is also subsidizing efforts to promote the development of self-employment opportunities for older workers and offering subsidies to older workers who form businesses whose vision is continuing employment for other older persons
- Finally, it is funding the development of community-based organizations formed to provide opportunities for local residents age 60 and over who seek non-regular employments such as part-time, temporary, and contract work. These are called Silver Human Resource Centers. These have become a real success in Japan.
So, is it time for someone to ask Dennis Hopper-should we be moving our California Dreaming even further west-across the ocean to Japan where the economic climate fits our downshifting lifestyle?
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