Retirement Costs Research Articles

Commentary: Laboring to understand the economic impact of spinal disorders

Schofield DJ, Shrestha RN, Percival R, etal. The personal and national costs of early retirement because of spinal disorders: impacts on income, taxes, and government support payments. Spine J 2012;12:1111-8 (in this issue).

The personal and national costs of early retirement because of spinal disorders: impacts on income, taxes, and government support payments

Spinal disorders can reduce an individual's ability to participate in the labor force, and this can lead to considerable impacts on both the individual and the state. This study was aimed to quantify the personal cost of lost income and the cost to the state from lost income taxation, increased benefits payments, and lost gross domestic product (GDP) as a result of early retirement because of spinal disorders in Australians aged 45 to 64 years in2009. This was done using cross-sectional analysis of the base population of Health&WealthMOD, a microsimulation model built on data from the Australian Bureau of Statistics' Survey of Disability, Ageing and Carers, and STINMOD, an income and savings microsimulation model. Linear regression models were used to examine the relationship between spinal disorders, labor force participation, income, taxation, and government support payments. It was found that individuals aged 45 to 64 years who have retired early because of spinal disorders have significantly lower income (79% less; 95% confidence interval [CI], -84.7, -71.1; p<.0001), pay significantly less taxation (100% less; 95% CI, -100.0, 99.9; p<.0001), and receive significantly more in government support payments (21,000% more; 95% CI, 12,767.0, 35,336.4; p<.0001) than those employed full time with no health condition. Individuals who have retired early because of spinal disorders have a median value of total weekly income of only AU$310, whereas those who are employed full time are likely to receive four times this. This has a large national aggregate impact, with AU$4.8 billion lost in annual individual earnings, AU$622 million in additional welfare payments, AU$497 million lost in taxation revenue for governments, and AU$2.9 billion in lost GDP: all attributable to spinal disorders through their impact on labor force participation. Although the individual has to bear the economic costs of lost income in addition to the burden of the condition itself, the state experiences the impacts of loss of productivity from reduced workforce participation, lost income taxation revenue, and increasing government support payments.

The Social Costs of Health-related Early Retirement in Germany: Evidence from the German Socio-Economic Panel

Abstract Using data from the German Socio-economic Panel, we study how stratification in health and income contributes to the social cost of health-related early retirement, the balance of lost labour income and health benefits. On average, early retirees improve their health by almost two thirds of the loss suffered during the last four working years. We calibrate counterfactual scenarios and find keeping all workers in very good health, the highest of five categories of self-assessed health, would delay the average retirement age by more than three years and reduce the social costs by more than 20 percent. JEL Classification: H55, I12, O15

The impact of back problems on retirement wealth

This study undertook an economic analysis of the costs of early retirement due to back problems, with the aim of quantifying how much lower the value of accumulated wealth of individuals who exit the workforce early due to back problems is by the time they reach the traditional retirement age of 65 years – compared to those who remained in the workforce. This was done using the output dataset of the microsimulation model Health&WealthMOD. It was found that over 99% of individuals who are employed full time will have accumulated some wealth at age 65 years, whereas as little as 74% of those who are out of the labour force due to back problems will have done so. Those who retire from the labour force early due to back problems will have a median value of total accumulated wealth by the time they are 65 of as little as $3708 (for women aged 55–64 years). This is far lower than the median value of accumulated wealth for those women aged 55–64 years who remained in the labour force full time, who will have $214,432 of accumulated wealth at age 65 years. Not only will early retirement due to back problems limit the immediate income available to individuals, but it will also reduce their long-term financial capacity by reducing their wealth accumulation. Maintaining the labour force participation of those with back problems, or preventing the onset of the disease, should be a priority in order to maintain living standards comparable with others who do not suffer from this condition.

Early Retirement and Income Loss in Patients with Early and Advanced Parkinsonʼs Disease

The indirect costs of Parkinson's disease (PD) may be larger than direct healthcare costs, and the largest component of indirect costs is income loss related to early retirement. No recent retrospective analysis details PD-related early retirement and income loss in the US. We used an observational, matched cohort to study wages and labour force participation over 4 years and to simulate lifetime income losses conditional on being newly diagnosed with PD (naive) or having evidence of increasing disability. Actively employed primary beneficiaries of private insurance policies aged 18-64 years with more than two PD diagnoses (International Classification of Diseases, Ninth Revision, Clinical Modification [ICD-9-CM]: 332.x) or one diagnosis and a prescription of an antiparkinsonian drug were selected from a privately insured claims database. Continuous health coverage during analysis periods was required. Naive patients were defined as having no claims history indicative of PD during the year prior to first diagnosis or prescription use. A PD with ambulatory assistance devices (PDAAD) cohort was also followed from the date of first evidence of a wheelchair or walker. Controls without PD were matched on age, sex and region. Survival analysis and Wilcoxon rank sum tests were used to compare rates of early retirement and income loss. A simulation of projected economic loss was conducted for PD cohorts diagnosed at different ages using Bureau of Labor Statistics labour force participation and income data. Naive PD patients (n = 278) and PDAAD patients (n = 28) were on average aged 53 years and had significantly higher rates of co-morbidities at baseline versus controls. Conditional on being employed, there was no statistical difference in earnings. However, the hazard of early retirement associated with PD was 2.08 (p < 0.001) for the naive cohort and 5.01 (p < 0.001) for the PDAAD cohort. From age 40 to 79 years, earnings losses in year 2009 values were $US569 393, $US188 590, $US35 496 and $US2451 for those diagnosed at age 45, 55, 65 and 75 years, respectively. Estimates increased by 9% to 37% when using expected 2018 labour force participation estimates. The cost of early retirement associated with patients with PD was substantial. Given that the proportion of Americans participating in the labour force in older age groups is expected to increase, PD-related early retirement costs will likely rise.

From Corporatism to Public Utilities: Workplace Pensions in the 21st Century

For many OECD countries, workplace pensions have been an important mechanism for supplementing state-sponsored social security. Notwithstanding significant differences between developed economies in the significance attached to workplace pensions, provision has been typically encouraged through preferential tax policies and corporate benefits and compensation packages. If relevant for the looming retirement of the baby-boom generation, it is doubtful that these arrangements will be as important for future generations. As state-sponsored social security has been discounted in terms of promised value and entitlement, traditional workplace pensions have been closing and replaced by retirement saving instruments that are neither as lucrative nor as dependable in terms of final value. Recognising the retrenchment in workplace pensions, governments have sought to encourage and, in some cases, develop different types of retirement savings institutions. This paper charts the decline of traditional workplace pensions, the apparent inadequacy of alternatives such as money purchase (defined contribution) schemes, and the rise of what are referred to as ‘public utilities’: government sponsored savings institutions that are designed to compensate for the decline (in coverage and promised value) of workplace pensions albeit at a more modest level than that associated with traditional defined benefit schemes. In doing so, I draw upon the experience of the US and the UK, Australia, Canada, and New Zealand, as well as developments in Germany and continental Europe. Essentially, it is argued that the rise of public utilities in this domain is indicative of the transformation of corporate capitalism over the past 25 years and the inability of governments to shoulder the retirement costs of their ageing societies in an era of global financial integration.

Pension Reform in the Presence of Financial Market Risk

As their populations grow older, the industrial countries face steep increases in public pension costs. If countries change their pension systems in advance of sharply higher pension costs, it is possible to prepare for the added retirement costs by funding a portion of the future liabilities through increased saving. By boosting capital formation and economic growth, higher saving has the potential to increase the incomes - and the welfare - of future workers and retirees.This paper considers investment accumulation and pension adequacy in light of financial market risk. We examine two alternative reforms of the U.S. pension system that are aimed at pre-funding part of future pension liabilities and increasing national saving. The first policy expands the role of advance funding in the existing Social Security system by moving toward a policy of tax increases that are large enough to maintain close actuarial balance over a 75-year horizon. Under the alternative policy, the traditional Social Security program adopts pay-as-you-go financing after 2033 and a new system of individual investment accounts is adopted to supplement (reduced) pensions under the traditional system. Advance funding takes place in the new individual investment account system.

Evaluating Health Care using System Dynamics Modelling – a Case Study in Schizophrenia

AIM: To demonstrate based on a schizophrenia case study model that System Dynamics Modelling (SDM), a set of conceptual tools that help understanding the structure and dynamics of complex systems, can be a useful method in the field of health care evaluation, specifically to assess cost of illness and budget impact of complex diseases. METHODS: Using the specific Vensim DSS and Venapp software tools, a case study model was programmed, simulating schizophrenia costs in Germany up to the year 2050. Fixed model input was the age structure of the German population, the suicidal rate for the general population and for people diagnosed with schizophrenia, the general death rate and the proportion of suicides and schizophrenia prevalence and incidence. Subsystems of the model were: patient stocks and flows, medication cost, treatment cost, other relevant cost, occupational disability cost, early retirement cost, total schizophrenia cost, age distribution and auxiliary calculations. RESULTS: The case study schizophrenia SDM model allows analyzing the distribution of schizophrenia costs in the German health systems and demonstrates how the cost distribution changes with changing conditions (e. g. reduced relapse rate with the spread of more efficient medication). For the base case scenario - at the beginning of the model in the year 2000 - early retirement cost accounted for almost 50 % of the monthly total costs of schizophrenia of 474 180 000 €, followed by hospital costs, costs of occupational disability, and costs of non-medical complementary offerings. Indirect costs were much more important than direct costs. Costs of schizophrenia reached a peak around the year 2010 and decreased thereafter. With an increasing percentage of patients taking atypicals overall costs were decreasing. CONCLUSIONS: This paper supports system dynamics modelling as an alternative, flexible and user friendly modelling technique for application in health care evaluation.

The shape of hiring and separation costs in France

In this article, we estimate the structure of costs of hiring, terminating, and retiring employees in France. We use a representative panel data set of French establishments that contains direct measures of these various costs as well as measures of entries and exits for the years 1992 and 1996. First, we show that our panel data source is able to reproduce results obtained by Abowd and Kramarz (2003) when we use the cross-section dimension. Our estimates show that collective terminations are much more expensive than individual terminations: legislation, namely the requirement to set up a “social plan” in case of collective terminations, magnifies firing costs. Collective terminations entail very large fixed costs. Termination costs are essentially linear in the number of terminated workers, with collective terminations being much more expensive. The costs of retirement are concave in the number of retired workers with a fixed cost component which is smaller than the one estimated for terminations, and quite smaller than that obtained by Abowd and Kramarz (2003). Finally, we find that hiring costs are small and seem only present when hiring on CDI; costs of hiring on short-term contracts are almost zero. Finally, the fixed (firm-specific) component of hiring costs is very small.

Jay and Jeanie Schottenstein Prize in Cardiovascular Science: Predicting Cardiovascular Illnesses for the 21st Century, and the Unpredictable …

Changes in our society such as the increasing cost of retirement and age redistribution toward a larger elderly population will require humans to remain highly functional until an advanced age. As a consequence, chronic illnesses that are primarily responsible for reducing functionality and life expectancy will require improved prevention and therapeutic strategies. In a global way, cardiovascular disease and cancer represent the most challenging disorders to maintaining the functional integrity of our fellow humans. A new theory has been derived from recent progress in our understanding of atherosclerosis as a key mechanism for cardiovascular disease and of cancer. Instructively, this theory provides a bridge at the stem cell level, linking most chronic disorders.

Total societal costs attributable to the prevention of recurrent HER2+ breast cancer.

Abstract Abstract #6101 Introduction: Adjuvant therapies are available to prevent breast cancer recurrence that may reduce morbidity and mortality. However, the associated savings to society have not been quantified, particularly for HER2+ patients. Methods: We reviewed the literature (PubMed) to estimate the costs attributable to breast cancer recurrence including direct (medical and non-medical) and indirect (loss income, productivity, informal care) costs. The following sources were used to estimate the recurrence cost. The 10-year average direct medical costs of recurrence were obtained from an analysis of SEER-Medicare data (Stokes 2008). This study compared women with recurrence to similar women without recurrence and accounts for differential costs associated with survival (ie, it did not estimate only the cost of treating recurrent cancer). In the initial year after cancer diagnosis, women required an additional 66 hours of personal time to obtain medical services (Yabroff 2007). After recurrence, an excess of 9% of patients would leave the work force if they were aged 50-64 (Lidgren 2007). Women were found to take an additional 8.5 months away from work during the 3 years following a recurrence compared with those without recurrence (Drolet 2005). The intensity of informal care was similar (0.8 hour/week) in the first year after recurrence as it was for women without recurrence (Lidgren 2007). The valuation of utilization was conducted from a societal perspective and costs reported as 2008 US dollars. Because certain costs were relevant to specific ages, we estimated costs in 3 age cohorts (30-49, 50-69, and ≥70). Lost income from early retirement was calculated as the number of years retired from work before the age 65 times the annual average income derived using the national average wage and benefit data. Patient time required for receiving care, time absent from work, and caregiver time were also valued in the same way. We combined this information into a simulation used to estimate the number of HER2+ women diagnosed in one calendar year in the United States, and whose recurrence could be prevented with trastuzumab. The model accounted for variability of clinical and economic inputs by sampling from distributions using 5,000 replications. The mean costs per person and the middle 95% of the distribution were reported. Results: For ages 50-69, early retirement costs were $39,600. Costs due to work absences were $41,600 (age 30-49) and were $31,200 (age 50-69). The total societal costs attributable to a single recurrence were $60,400 ($32,000 to $129,000) for ages 30-49, $89,600 ($45,000 to $203,000) for ages 50-69, and $18,900 ($13,000 to $25,000) for ages ≥70. Overall, the savings from preventing recurrence with trastuzumab were estimated at over $167 million ($70 million to $385 million) per year of diagnosed cases of HER2+ tumors. Conclusion: Therapies that can prevent breast cancer recurrence can lead to substantial savings to society and represent a considerable opportunity cost. Citation Information: Cancer Res 2009;69(2 Suppl):Abstract nr 6101.

Transfers and Labor Market Behavior of the Elderly in Developing Countries: Theory and Evidence from Vietnam

In this paper, I analyze the crowding-out effects of public transfers on labor supply of the elderly in the context of developing countries. I argue that the interactions between private transfers received and labor supplied by the elderly affect the opportunity cost of retirement and, therefore, magnify the crowding-out effects of public transfers on the labor supply of the elderly. Using household survey data from Vietnam, I find the evidence supporting this hypothesis. That is, the crowding-out effect is about two times larger when accounting for the endogeneity of private transfers, which is caused by the interactions of private transfers and the labor supply.

Health care and retirement costs in North America spiralling uncontrollably: what are employers to do?

This article addresses some of the issues related to the rising costs of employee benefits in the United States and Canada in terms of the cost of retirement pensions and employer-provided health insurance for employees and retirees. We examine various factors that affect the cost of these services for organizations as well as how these might affect the choices employers might be forced to make. We elaborate on how various factors might compel employers to shift the cost of benefits to employees. Specifically, we elaborate on various legislative, economic, and demographic constraints on these employee benefits and examine in detail two employer practices of concern, namely cash balance retirement plans and consumer-directed healthcare plans.

The Health Gradient and Early Retirement in Germany: Evidence from the German Socio-Economic Panel

Rationale: Recent empirical studies and our own research have shown that the health gradient in income increases with age. This raises the question of whether a worker's relative position vis-a-vis the agegroup-specific health gradient can help to explain differential retirement behaviour at the individual level. Identification of a causal relationship between the health gradient and retirement behaviour could provide a new tool to predict future retirement behaviour on the basis of social and economic determinants. It would also establish a new rationale for health and educational policies that target the health gradient since the social costs of early retirement are likely to increase substantially amid population aging. The problem of early retirement can then no longer be addressed by pension policies alone, but must be addressed by investment in health and human capital. Objectives: We aim to understand the relationship between the health gradient - the positive correlation between income and health - and the timing of individual retirement behaviour in Germany, using data from the German Socio-economic Panel (GSOEP). We further aim to develop a method that promises better predictions of the long term impact of policies affecting the health gradient on workers' timing of retirement amid population aging. Methodology: We first estimate agegroup-specific health gradients and find that their slope increases with age. We then estimate a variety of parametric survival models, based on the Weibull distribution for early retirement. We use the results from stratified survival analysis, with strata defined on the basis of workers' position relative to the health gradient, to make out-of-sample predictions of workers' individual time to retirement, conditional on the included covariates. Results: We find that our new measure of workers' position relative to the agegroup-specific health gradient has about the same explanatory power as self-assessed health status and income together. It can therefore serve as a near-perfect substitute for these conventional covariates in survival analyses of individual retirement behaviour. Our parametric survival model specifications perform well and our basic findings are confirmed when compared to semi-parametric Cox survival models with the same set of covariates. We find that the lowest quintile of workers along the health gradient are approximately 30 percent more likely to retire during any given period of time than the second lowest quintile of workers - and almost twice as likely as the average worker among the 60 percent ranked highest. Conclusions: We have demonstrated the explanatory power of the health gradient for the timing of workers' individual retirement in Germany. This will allow us - in future research - to make quantitative predictions about the likely long-term implications of policies affecting the health gradient and workers' mobility on the health gradient during their lifecycle. More generally, our findings underline the importance of imperfect medical technology in reconciling the well-known human capital theory of health demand with the observation of more rapid declines in health among less educated workers.

Discovering relationships between modularity and cost

While much has changed in product modularity research in the 18 years since the independence axiom, some basic questions remain unanswered. Perhaps the most fundamental of those questions is whether increasing modularity actually saves money. The goal of the research behind this paper was to clearly define the fundamental relationship between product modularity and product cost. Our previous work in modular product design provided a complete package of a product modularity measure and a modular design method. The “best” measure was created and verified after correcting common performance problems among the seven measures, finally subtracting the averaged relationships external to modules from the averaged relationship within modules. After comparing and finding better design elements among four representative modular design methods, the “best” method was developed that includes product decomposition, multi-component reconfiguration and elimination, and an extended limiting factor identification. The “best” method/measure package quickly yields redesign products with higher modularity. To seek out relationships between product life-cycle modularity and product life-cycle cost, modular product design experiments were implemented for four off-the-shelf products using the new measure/method package applied to increase both functional and retirement modularity. The modularity data recorded for each redesign included retirement modularity, manufacturing modularity and assembly modularity. Each redesign’s life-cycle cost was also obtained based on several classical cost models. The cost data recorded for each redesign included retirement cost, manufacturing cost, and assembly cost. The best relationships came from the retirement viewpoint. However, there is not a significant relationship between any life-cycle modularity and any life-cycle cost unless there are significantly large modularity changes. Life-cycle modularity-cost relationships are more likely to exist in data pools generated from that life-cycle redesign viewpoint. The beginning of modular redesign, where greater modularity improvements are seen, is more effective at reducing costs. Cost savings depend the appropriateness of the modularity matrix’s product architecture representation from a cost savings viewpoint.

Public Employees' Health Benefits Survive Major Threats, So Far

Previous studies of public employees' health benefits indicate that they have been spared many of the changes evident in the private sector. But the recession and plunging state revenues in the early 2000s presented growing challenges to trying to preserve these benefits. Findings from the Round Five site visits of the Community Tracking Study (2005) reveal that benefits have still witnessed surprisingly few major modifications. But a growing gap between public- and private-sector benefits and new accounting requirements for government entities' retirement costs raise new threats to this protected status.

Changing medical criteria and medical severance payments may reduce the rate and costs of ill-health retirement

To identify the core best practice standards in ill-health retirement (IHR) procedures. To investigate whether changing medical criteria and introducing medical severance payments affect the rate and cost of IHR. The core standards for best practice in IHR procedures were distilled from the published literature. On 1st April 2000 the study pension scheme altered the IHR medical criteria to define permanent incapacity and introduced medical severance payments for employees with temporary incapacity. Rates and costs of IHR were measured before and after these changes. Following the changes, the annual rate of IHR fell from 8.89 to 2.90 per 1000 members (P < 0.001), the median age at IHR rose from 50 to 55 years (P = 0.01) and pension scheme costs fell by 25 million pounds sterlings per year. Changing medical criteria and introducing medical severance payments may reduce the rate and costs of ill-health retirement. Target rates of four cases of IHR per 1000 active members per year, and 15% of total retirements, are proposed for schemes serving industries with average health risks.

Kosten der Frühverrentung am Beispiel der Schizophrenie

Schizophrenia is a severe psychic disorder that occurs at young age and often leads to a work disability. The disease not only induces direct costs in the health care system but also indirect costs that show up in the social security system. In this study, we apply statistics from the social security administration on early retirement due to disability. Over 6000-males and females per year retire with the diagnosis schizophrenia (classified as 295, ICD-9). The average retirement age is 39 for males and 42 for females. Schizophrenia is the most important single reason for early retirement before age 40. Of all male cases of disability retirement under the age of 40, 14.7 % are due to schizophrenia. The present discounted value of pensions paid out before the standard retirement age of 65 is 215 000 Euro for an average male. Moreover, the revenue loss in income taxes and payroll contributions amounts to 345 000 Euro. In the year 2000, a total of 125 000 persons under the age of 65, who originally entered retirement with the diagnosis schizophrenia, are estimated to be receiving a pension. The corresponding annual expenditures of the social security system reach 1.3 Billion Euro; the revenue loss (pay-roll plus income taxes) reaches 2 Billion Euro. Since only two thirds of the working age population is covered by the social security system, the costs of early retirement due to schizophrenia are underestimated by a factor of at least one third.

The Shape of Hiring and Separation Costs

In this article, we estimate the structure of costs of hiring, terminating, and retiring employees in France. We use a representative panel data set of French establishments that contains direct measures of these various costs as well as measures of entries and exits for the years 1992 and 1996. This data set results from the match of two sources: the Wage Structure Survey and the Workforce Movement Questionnaire. We show that the cost of hiring into permanent contracts is larger than the cost of hiring into fixed-term contracts. But these costs are small in comparison to the costs of retiring or terminating workers. Furthermore, collective terminations (dismissal of at least 10 workers during a 30 days period) are much more expensive than individual terminations. Hiring and separations are similar in one aspect: they entail no or little firm-specific fixed cost. Furthermore, termination and hiring costs are concave and induce firms to group their permanent hirings and separations. Retirement costs are linear. These estimates show that regulations imposed by French labor laws significantly affect the structure and the magnitude of these costs.

Accruing Retirement Costs for Federal Employees

The president's 2003 budget proposed that federal agencies pay the full cost of their employees' pension and retiree health benefits as such benefits are earned starting in 2003. The main reason for the proposed change is to provide policymakers and agency managers with a more complete measure of the cost of providing current services. The main disadvantage of the proposal is that estimates of the accrual costs of retiree health benefits are subject to large errors. The proposed change would not increase total outlays, nor would it affect the budget deficit or surplus.