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Some pros and cons of early retirement.



The Age Discrimination in Employment Act The Age Discrimination in Employment Act of 1967, Pub. L. No. 90-202, 81 Stat. 602 (Dec. 15, 1967), codified as Chapter 14 of Title 29 of the United States Code, through (ADEA), prohibits employment discrimination against persons 40 years of age or older in the United States (see ).  (ADEA ADEA Age Discrimination in Employment Act of 1967
ADEA American Dental Education Association (Washington, DC)
ADEA Association for the Development of Education in Africa (RSA) 
) of 1967 as amended forbids discrimination against men and women over forty years of age. It also prohibits mandatory retirement A mandatory retirement age is the age at which persons who hold certain jobs or offices are required by statute to step down, or retire.

Typically, mandatory retirement ages are justified by the argument that certain occupations are either too dangerous (military personnel)
 for age. The Act does afford employers certain exceptions. One such exception permits employers to reduce workforces by offering truly voluntary retirement incentives. Although voluntary programs can be humane and beneficial to both employee and employer, they can also be costly and undesirable to both. Companywide early retirement programs rarely do companies long-term good. Offers frequently encourage the most creative, risk oriented o·ri·ent  
n.
1. Orient The countries of Asia, especially of eastern Asia.

2.
a. The luster characteristic of a pearl of high quality.

b. A pearl having exceptional luster.

3.
 and productive employees to leave, while those who have doubts about their ability to compete elsewhere remain (Machan, 1989). However, carefully designed early retirement programs can be beneficial. For example early retirement plans at IBM (International Business Machines Corporation, Armonk, NY, www.ibm.com) The world's largest computer company. IBM's product lines include the S/390 mainframes (zSeries), AS/400 midrange business systems (iSeries), RS/6000 workstations and servers (pSeries), Intel-based servers (xSeries)  (Harris, 1986) and Nynex Corporation (Lopez, 1989) cut costs and improved competitive position in a sagging sag  
v. sagged, sag·ging, sags

v.intr.
1. To sink, droop, or settle from pressure or weight.

2.
 economy. This paper addresses the pros and cons pros and cons
Noun, pl

the advantages and disadvantages of a situation [Latin pro for + con(tra) against]
 of early retirement programs. Key considerations in framing early retirement programs are: (1) defining the appropriate early retirement plan and (2) deciding which employees will be eligible. An examination of theories of retirement in antecedent ANTECEDENT. Something that goes before. In the construction of laws, agreements, and the like, reference is always to be made to the last antecedent; ad proximun antecedens fiat relatio.  to both considerations.

There are a large number of theories about the effects of retirement on individuals. These theories propose that retirement has little effect on the quality of life, that it has a very large effect, and that its effect depends on moderating factors (Beehr, 1986). Theories have shaped thinking and research about retirement but none of them was developed as a theory of retirement specifically. Most are theories about the general process of aging. There is no comprehensive theory of retirement that can provide a frame work for organizing and interpreting research evidence.

Theories of Retirement

Most theories about retirement have emerged from the fields of gerontology gerontology: see geriatrics. , psychology and sociology. These theories have focused on various aspects of a retiree's life, such as quality of life, physical and mental health, satisfaction with life and retirement and mortality. While general theories of aging have dominated theories of retirement, these have not been very useful (Burnett, 1989).

The major differences in theories of retirement include the importance of work roles relative to other significant life roles and the degree to which substitution of other life roles can aid adaptation. Since there has been little attempt to integrate individual theories, there is no single comprehensive theory of adaptation to retirement. Therefore, attention has centered on personality variables. This in turn explains some of the individual variation in levels of leisure activity and life satisfaction.

Early Retirement - A Look Ahead

Recent trends project that early retirement will be negotiated on a selected group basis within time limits to prevent simultaneous mass employee defections and to preserve critical skills. Negotiated plans have presented some legal problems, and court rulings are somewhat inconsistent. Pending legislation may provide clearer guidelines guidelines,
n.pl a set of standards, criteria, or specifications to be used or followed in the performance of certain tasks.
 (NIBM NIBM National Institute of Business Management (Sri Lanka)
NIBM National Institute of Banking Management (India) 
, 1990). In view of legal uncertainties, companies are planning retirements more carefully and are reserving the right to veto employee requests for early retirement. Early retirement programs should not be remedies for poor human resource management practices but should be part of a total personnel program (Machan, 1989).

Both employees and employers consider similar matters when planning early retirement. Economic conditions are important: if jobs are hard to find, fewer employees will opt for early retirement. The specific features of an early retirement plan will affect retiree demographics The attributes of people in a particular geographic area. Used for marketing purposes, population, ethnic origins, religion, spoken language, income and age range are examples of demographic data. . Alternative employment opportunities are also considerations, since some early retirement plans provide supplemental pay for retirees who pursue certain types of careers (Solomon, 1989).

Lawsuits and court challenges also matter. Case law suggests that employers may exercise a veto over who will be given the option of early retirement, but veto power must not be used to discriminate. Another issue is the appearance of coercion coercion, in law, the unlawful act of compelling a person to do, or to abstain from doing, something by depriving him of the exercise of his free will, particularly by use or threat of physical or moral force. . Limited selection time and negative incentives, such as cutting health and life-insurance benefits for employees who don't retire immediately, can result in employee lawsuits (Fox, 1988). Federal courts have held that early retirement plans are not inherently discriminatory dis·crim·i·na·to·ry  
adj.
1. Marked by or showing prejudice; biased.

2. Making distinctions.



dis·crim
 but may be illegal if they amount to constructive discharge. Therefore, employees should: (1) be given full information about the plan, (2) have enough time to consider the offer, and (3) not be threatened in any way with involuntary termination unless grounds for involuntary termination exist (Godofsky, 1988). Coercion may also comprise the motivation of remaining employees who see how the company treats its long service employees.

Another trend is the increased use of rehearsal retirement and tapering off tapering off Sports medicine A format for competition training, where a world-class athlete ↓ frequency and intensity of training in the wks before an Olympic or other sport event of importance, with the hope that perfomance in the key event will be medal-worthy  programs for early retirees. Professional out-placement and financial counseling for employees and spouses are being expanded into full scale job and leisure training programs. Probably the most significant trend is a growing recognition that early retirement may be a thing of the past. Declining job opportunities, increasing cost of Social Security and private retirement plans, later age of family formation, reduced propensity to save, and increasing costs of living argue against early retirement programs.

Early retirement programs run counter to two national phenomena: Congressional desire to promote later retirement, and demographic indications that the nation will have a smaller labor pool in the next two decades (Fluhr, 1989). Congressional desire to promote later retirement is manifest in its increase in Social Security earning limits and in legislation against mandatory retirement. A diminishing labor pool argues forcibly forc·i·ble  
adj.
1. Effected against resistance through the use of force: The police used forcible restraint in order to subdue the assailant.

2. Characterized by force; powerful.
 against the attrition Attrition

The reduction in staff and employees in a company through normal means, such as retirement and resignation. This is natural in any business and industry.

Notes:
 of early retirement. This obvious conflict of policies is especially significant as the nation struggles to compete in world markets.

Why Employees Retire Early

Employees retire early for physiological, psychological, social and economic reasons. Physiological reasons include poor health and health maintenance. Employees may also wish to retire if job stress and work demands become detrimental to their health. Psychological reasons include the need to find a more desirable workplace interaction (declining work challenge and limited chance for advancement), need for new learning experiences and new successes, and need to fulfill childhood dreams. Social reasons include peer group pressures to retire (from both coworkers and friends outside of work) and the intensity of family ties (care for elderly relatives or to take over the family business). Economic reasons center on financial status and include the perceived adequacy of retirement income and spousal spou·sal  
adj.
1. Of or relating to marriage; nuptial.

2. Of or relating to a spouse.

n.
Marriage; nuptials. Often used in the plural.
 financial status and retirement intentions.

Many early retirees seek other employment. They look for job satisfaction and a sense of accomplishment not achieved in their pre-retirement job, a chance to remain active and to avoid boredom, an opportunity to fulfill childhood dreams, and a way to contribute to society. Early retirees may return to work in different ways: a job with another company, self employment, free lance consulting, or their own company.

Employees' Early Retirement Problems

Employees who opt for early retirement must often solve financial problems, since retirement frequently entails a loss of perks perk 1  
v. perked, perk·ing, perks

v.intr.
1. To stick up or jut out: dogs' ears that perk.

2. To carry oneself in a lively and jaunty manner.
 and income (Crossen, 1989). These problems can be managed in various ways. Employees able to invest enough during working years can sustain their current life style. An alternative is to alter their life style, foregoing luxuries and living on a smaller income.

A second problem is psychological. Retirees face role changes which raise questions of self image, values, power and security. They should be advised of the need to anticipate and realize the changes retirement will require in their lives. For example, retirees will need to establish a personal identity independent of their work role in the company. They must see the necessity to give up what they have spent their working lives building and to replace company values and peer expectations with their own values and expectations. They must learn to live with the loss of power that often accompanies leaving an organizatiion. They must also learn to build security into new surroundings and routines, replacing the loss of security of a sure and settled place in the familiar world of work.

An identity crisis is a third early retirement problem. This problem exists because we often equate e·quate  
v. e·quat·ed, e·quat·ing, e·quates

v.tr.
1. To make equal or equivalent.

2. To reduce to a standard or an average; equalize.

3.
 who we are with what we do and how much we earn. Pre-retirement seminars, new hobbies and changes of environment can help develop a new identity.

Many retirees face boredom. The eagerly anticipated time to "do the things they always wanted to do" may turn into a dull routine of satiated sa·ti·ate  
tr.v. sa·ti·at·ed, sa·ti·at·ing, sa·ti·ates
1. To satisfy (an appetite or desire) fully.

2. To satisfy to excess.

adj.
Filled to satisfaction.
 leisure. Thus, retirees are encouraged to develop meaningful hobbies and to intersperse in·ter·sperse  
tr.v. in·ter·spersed, in·ter·spers·ing, in·ter·spers·es
1. To distribute among other things at intervals:
 leisure activities with worthwhile projects.

The Issues of Early Retirement

Two categories of issues which emerge from research on successful retirement which deserve discussion: (1) personal factors, and (2) environment factors (Beehr, 1986).

Personal Factors. Four attributes have been found to influence the decision to retire: Type A behavior type A behavior
n.
A behavior pattern characterized by tenseness, impatience, and aggressiveness, often resulting in stress-related symptoms such as insomnia and indigestion and possibly increasing the risk of heart disease.
, skill obsolescence ob·so·les·cent  
adj.
1. Being in the process of passing out of use or usefulness; becoming obsolete.

2. Biology Gradually disappearing; imperfectly or only slightly developed.
, health and economic well-being.

Type A behavior, characterized by hard driving, aggressive, impatient activity, is hypothesized to be an indicator of coronary-prone individuals. This type of behavior variously affects early retirement. It appears that Type A people are less likely to retire, because they relish the pace and competition of the work environment. However, if their health deteriorates, they may retire early.

When employees' job skills become obsolete, they may be more likely to retire for two reasons. First, they may be unhappy performing a job for which they are not prepared and which they probably perform poorly. If obsolete workers are older, they may opt for retirement. Second, organizations often offer enticing retirement options to workers who are viewed as obsolete, so that they will retire and make room for more skilled workers. These retirement options are also encouraged because senior people are often paid higher wages.

Employee health is considered to be a good predictor of retirement decisions. It may, however, be less valid as a predictor of normal retirement than of early retirement, if health declines with age. Most research finds no relationship between health and retirement when demographic variables are factored out. Much more carefully controlled study is needed before definite conclusions can be drawn.

Personal financial condition is an important factor in the retirement decision. It is probably not the decisive important factor, since a desire to quit working is also a function of the type of work an employee performs. Finances greatly influence a decision to retire earlier rather than later. Early retirees lose more years of higher-paid employment and receive lower annual retirement pay.

Environment Factors. Environmental factors that may influence the decision to retire are attainment of occupational goals, job characteristics, marital and family situations, and leisure pursuits.

The relationship between attainment of occupational goals and retirement seems logical, but its precise nature remains a mystery to be probed by further research. An employee may retire because he/she has accomplished all that is desired and has no further achievement-related reason to continue working. Conversely con·verse 1  
intr.v. con·versed, con·vers·ing, con·vers·es
1. To engage in a spoken exchange of thoughts, ideas, or feelings; talk. See Synonyms at speak.

2.
 he/she may be so frustrated frus·trate  
tr.v. frus·trat·ed, frus·trat·ing, frus·trates
1.
a. To prevent from accomplishing a purpose or fulfilling a desire; thwart:
 by failure to achieve desired goals that retirement may be a welcome out.

Undesirable job characteristics may provide the push to get out of the job. Other job characteristics which may be related to the decision to retire include: travel required, physical labor, outdoor work, the nature of physical working conditions and supervisory style. Some job characteristics may exacerbate other physical causes of retirement; for example, high tech jobs subject to rapid technological change might lead to skill obsolescence, and this in turn might encourage retirement.

Marital and family situations can also influence early retirement decisions. Although there is little research evidence, it is speculated that the prospect of spending more time in a family setting after retirement may be an inducement Inducement
Electra

incited brother, Orestes, to kill their mother and her lover. [Gk. Myth.: Zimmerman, 92; Gk. Lit.: Electra, Orestes]

Hezekiah

exhorts Judah to stand fast against Assyrians. [O.T.
 to retire. Family situations may also increase or decrease financial obligations. Children entering or graduating from college can have a significant impact on the family's economic well-being. The death of a spouse might influence retirement. A severely depressed employee may withdraw from social activities, including work. Conversely, the death of a spouse who suffered a long-term care long-term care (LTC),
n the provision of medical, social, and personal care services on a recurring or continuing basis to persons with chronic physical or mental disorders.
 intensive illness, might free an employee to renew work or leisure activities. The retirement decision may be postponed or exercised.

Nonwork activities may also influence an employee to retire, even though leisure activities may not increase after retirement. Retirement may result from an anticipation of more leisure time or from the pull of a change in work or life activities. Retirement may allow time to travel or to write the great American novel This article is about The Great American Novel (as a concept). For other uses, see Great American Novel (disambiguation).

The "Great American Novel" is the concept of a novel that most perfectly represents the spirit of life in the United States at the time of its
.

In summary, retirement is a process that occurs over a period of time and involves making decisions, implementing those decisions and experiencing their consequences. Individual characteristics and environmental variables influence the decision to retire, and both employee and employing organization are affected by retirement. To date research on retirement has focused on the welfare of the individual. Adding an organizational perspective should aid significantly in understanding the causes and consequences of retirement.

Who Should Retire Early

Different occupational, psychological and leisure time responses of early retirees suggest that early retirement is not for everyone. Numerous questionnaires (quizzes) are designed to help an employee determine whether early retirement would be boon or bane BANE. This word was formerly used to signify a malefactor. Bract. 1. 2, t. 8, c. 1.  by ascertaining an individual's psychological (emotional) readiness for early retirement (Schwartz, 1989).

Planning for Early Retirement

Emotional readiness for early retirement involves financial readiness. Financial readiness requires careful planning. Here, too, questionnaires can help a prospective early retiree determine readiness (Jasen, 1989).

The key question facing early retirees is whether they will have sufficient income. Financial advisers suggest a minimum income of 70-80 percent of pre-retirement income for a period of 30-40 years. These data consider reduced expenses for commuting, clothes, and taxes, as well as increased costs of health care and recreation.

Financial planning Financial planning

Evaluating the investing and financing options available to a firm. Planning includes attempting to make optimal decisions, projecting the consequences of these decisions for the firm in the form of a financial plan, and then comparing future performance against
 can follow several approaches. Ideally an employee should start planning during early employment and build equity through regular saving and investment. Early plans should be based on a life expectancy Life Expectancy

1. The age until which a person is expected to live.

2. The remaining number of years an individual is expected to live, based on IRS issued life expectancy tables.
 of 95-100 years. If the employee is young or is not within ten years of retirement, investment in stocks if often recommended, since younger workers can accept more risk. If there are dependent children, tax exempt variable rate bonds can serve as an inflation hedge Inflation hedge

Investments designed to hedge against inflation and the loss of purchasing power associated with it.


inflation hedge

An investment with a value directly related to the level of general price changes.
. Financial advisors believe in delaying the use of savings as long as possible. They also recommend setting up a portfolio promising varied rates of return and investing in securities tied to inflation rates (Treasury bills and U.S. savings bonds Savings bond

A government bond issued in face value denominations from $50 to $10,000, with local and state tax-free interest and semiannually adjusted interest rates.


savings bond

A nonmarketable security issued by the U.S.
).

Late starters should take a different approach. They need large savings and low risk tax deferred investments to provide quick growth. They should consider blue chip stocks Blue chip stocks

Common stock of well-known companies with a history of growth and dividend payments.
 or mutual funds in a laddered portfolio (bonds with different maturity dates). Another possibility is a reverse mortgage, where a bank makes a monthly payment based on both the owner's equity Owner's equity

Paid-in capital plus donated capital plus retained earnings less liabilities.
 in a house and the owner's life expectancy. The bank recoups its payments by selling the house after the owner's death, and any surplus goes to the heirs.

Recommendations for an Early Retirement Program

1. Start early. Plan for retirement from the first day on the job. Incorporate retirement plans into other plans. Assume a need for 80% of pre-retirement income to age 100.

2. Study possible options. Get financial and psychological assistance.

3. Analyze the situation carefully. Use available tests. Anticipate change and consult family members.

4. Use company programs. Try a gradual retirement experiment to test reaction.

5. Have a health check-up.

6. Analyze the job market if other employment is contemplated.

7. Study community retiree programs.

8. Keep abreast Verb 1. keep abreast - keep informed; "He kept up on his country's foreign policies"
keep up, follow

trace, follow - follow, discover, or ascertain the course of development of something; "We must follow closely the economic development is Cuba" ; "trace the
 of laws concerning social security, taxes and retirement plans.

Summary

Employee early retirement programs are in confusion. Even the courts are divided concerning the legality le·gal·i·ty  
n. pl. le·gal·i·ties
1. The state or quality of being legal; lawfulness.

2. Adherence to or observance of the law.

3. A requirement enjoined by law. Often used in the plural.
 of such programs. The impact of the confusion may be felt by both employee and employer. Appropriately planned and carefully implemented, early retirement can bring about a humane and beneficial workforce reduction. Cost cutting can be achieved without hostility or economic, social or psychological hardship, while at the same time the organization is left in a better competitive position. Inappropriately planned and implemented early retirement plans can result in loss of experienced and highly productive workers, deep employee resentment, lower morale, and possible lawsuits.

Both employer and employee must plan carefully. Employers must limit the early retirement option to specific employee groups. Any plan must be carefully communicated, voluntary, and provide for reasonable decision time. Employees must be sure they have resources to sustain themselves financially and psychologically during retirement. Generalization gen·er·al·i·za·tion
n.
1. The act or an instance of generalizing.

2. A principle, a statement, or an idea having general application.
 is difficult because each employee and each employer faces unique problems. However some guidelines are possible. One guideline guideline Medtalk A series of recommendations by a body of experts in a particular discipline. See Cancer screening guidelines, Cardiac profile guidelines, Gatekeeper guidelines, Harvard guidelines, Transfusion guidelines.  which seems to apply to both employee and employer is to seek expert assistance.

References

Beehr, T. (1986), The Process of Retirement: A Review and Recommendation for Future Investigation, Personnel Psychology, 39, 31-55.

Burnett, J. (1989), Retirement versus Age: Assessing the Efficacy of Retirement as a Segmentation Variable, Journal of the Academy of Marketing Science, 17, 4, 333-343.

Crossen, C., (1989), Identity Crisis: A Loss of Status Afflicts Some Early Retirees, The Wall Street Journal, December 8, R. 5.

Fluhr, H. (1989), Early Retirement Programs Carry Benefits, Pitfalls for U.S. Companies, Pension World, February, pp. 34-37.

Fox, S. (1988), Age Discrimination and Early Retirement, Pension World, May, pp. 35-39.

Godofsky, D. (1988), Early Retirement Pensions: Penalty or Perk?, Personal Journal, August, pp. 69-73.

Harris, M. (1986), A Lifetime at IBM Gets a Little Shorter for Some, Business Week, September 29, 40.

Jasen, G. (1989), Save Before You Leap Before You Leap is the autobiography and self-help guide written by Muppet Kermit the Frog. It was released in September 2006. External links
  • ABC News excerpt
, The Wall Street Journal, December 8, R. 29-30.

Lopez, J. (1989), Nynex Unveils Early-Retirement Plan for Managers in Hopes of Cutting Costs, The Wall Street Journal, December 2, A3.

Machan, D. (1989), The Hidden Cost of Golden Handshakes golden handshake

token of gratitude bestowed on retiring employee after years of service. [Br. Pop. Culture: Misc.]

See : Farewell
, Forbes, February 20, 130.

Schwartz, G. (1989), Are You the Retiring Type? Take This Quiz and Find Out, The Wall Street Journal, December 8, R. 34.

Solomon, J. (1989), A Fine Line: Companies' Retirement Plans Weave a Path Between Compassion and Pragmatism pragmatism (prăg`mətĭzəm), method of philosophy in which the truth of a proposition is measured by its correspondence with experimental results and by its practical outcome. , The Wall Street Journal, December 8, R. 17.

The National Institute of Business Management National Institute of Business Management can mean:
  • National Institute of Business Management (India)
  • National Institute of Business Management (Sri Lanka)
, Inc., (1990), Research Recommendations, January 15, p. 2.
COPYRIGHT 1992 St. John's University, College of Business Administration
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Title Annotation:early retirement plans
Author:Paul, Robert J.; Townsend, James B.
Publication:Review of Business
Date:Jun 22, 1992
Words:2946
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