Retirement Plans and Productivity
Pension plans are designed to get older workers to retire. The reason for this is that while pay tends to increase over a worker’s life, their productivity often flatlines or even declines in old age, especially in physically demanding jobs. Often the industries with the largest declines in productivity with age also have large pension schemes with generous early retirement provisions, such as steel companies and airlines.
Over the past decade or so, the relative productivity of older workers has increased. And, as one might expect, retirement plans have become more stingy in response. There is no need to try to drive older workers out anymore, now that knowledge work is relatively more important than phyiscal work. Interestingly though, pensions have not simply become smaller, but the structure has changed in such a way as to perform exactly the opposite function they once did!
401ks trick workers into working longer. People underestimate how much retirement costs, and when they get close to retirement, they realize they will need more retirement savings and thus prolong employment longer than their younger selves had anticipated.