Early Retirement

Doing the garden, digging the weeds, who could ask for more?
Will you still need me, will you still feed me, when I'm sixty four?
--The Beatles

I have an uncle who took early retirement from Ford (F) in the 1970s. He's in his late 70s now, and he and his wife (also a former F employee) have basically been retired my entire adult life. I do not know the specifics of his retirement package, but I'm pretty sure that he's been collecting pension payments plus health insurance coverage from F for the past 35+ years.

If he had retired at 65, then he would only be ~10 years into his retirement benefit.

Policies that let employees retire while they are still in their productive years shoulder firms with additional cost. Larger streams of economic value must be diverted towards retirement obligations. This leaves less capital for other purposes such as investing in the future. This weakens the firm's competitive position. If business subsequently turns down in a secular fashion (as it has for the domestic automakers), then chance of survival--both for the firm and for the benefit plans--is reduced.

When private sector managers decide to offer early retirement packages, they must shoulder this risk for better or worse. In unhampered markets, early retirement programs would reach some limit due to increasing costs and plan failures.

In the public sector, instances of early retirement have been rising as well. The design of some government agency retirement plans permits employees to retire in their mid 40s with rich benefits.

The problem here is that decisions to offer early retirement packages to public sector employees do not face the same risk profile as do similar decisions made in the private sector. If city government bureaucrats, for example, decide to extend retirement benefits to young productive workers, then resources to cover this program do not come out of revenues from operations that produce economic value. Instead, these resources are obtained from taxpayers.

Stated another way, the risk associated with offering early retirements in the public sector is socialized. People in the private sector must work harder to support a burgeoning pool of retirees in the government sector.

Even those with rudimentary understanding of economics should whiff the ponzi of such a scheme.

Policies that promote early retirement from government jobs should be among the first under the knife of spending cuts.

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