With Maine now officially the “oldest state” in the country, with a median age the U.S. Census says is now topping 40, retirement issues come very much to the forefront in the minds of local government officials and employees. And Knight Kiplinger, whose company provides advice on both management and personal finance, will touch several aspects of retirement dilemmas during his keynote address to the Maine Municipal Association’s annual convention October 3 at the Augusta Civic Center.
Kiplinger’s company, Kiplinger Washington Editors, is perhaps best known for the Kiplinger Letter, started in 1923, which has been read by managers of businesses, non-profits, and government agencies for more than three generations. It was Knight Kiplinger’s grandfather who started the letter. Kiplinger said his company is unusual in the world of Washington journalism in always having been run by its editors.
“We have no partisan makeup or any ideological bias,” he said in a recent interview. “Our aim is to provide the best advice we can to our clients, to provide an unfiltered source of information that has been reliable over the years.”
In addition to the Letter, the company also publishes Kiplinger’s Personal Finance magazine, founded in 1947, which now with a circulation of 800,000. Many readers subscribe to both publications. As Kiplinger put it, “Managers have an obvious interest in personal finance, and the long-term trends are important to both”.
One thing Kiplinger foresees is a continued “graying” of America, although he points out that the trend is much less dramatic here than it is in other industrial democracies in Europe and Japan. Immigration and a relatively high birth rate among minority women have kept the United States population growing at about 1 percent a year. “In Europe, there isn’t even a replacement rate among the current population, and there’s far less immigration than here,” he said.
Still, the median age will likely continue to increase over the next two decades until the median national age, about 35, is similar to what Maine’s is now. And that means that by 2025 Maine’s median age will likely increase to at least 43, with profound implications for the balance between the workforce and retirees, he said.
“There’s no question that there will be a shortage of qualified workers,” he said, and government is one of the sectors that will feel the pinch most acutely. Many current government employees are now in their mid-to-late 50s – the heart of the baby boom – and they choose public service in the 1960s and early ’70s when it was considered “a noble and idealistic calling” among young people.
“Back then, working for government and non-profits was held in higher regard than a job in business,” he said. “It was part of a wave of government expansion that hadn’t been seen since the 1930s, and included Vista and the Peace Corps, which emphasized public service.”
Much has changed since then. Young people now, he said, are part of an entrepreneurial wave that has largely bypassed public sector jobs and even salaried positions at major corporations. “Business is now more attractive to a lot of young people, who believe in the entrepreneurial spirit and want to test themselves in the marketplace.” The change has helped provide renewed international business leadership by American, but it has numerous implications for change in what had been established policies. “This isn’t a value judgment on our part about the value of public service,” Kiplinger said. “But the facts do suggest that government will have to adjust to changes it hasn’t had to consider before.”
The traditional retirement system, for instance, has changed in the private sector from defined benefits – what today’s retirees enjoyed after working 30 or 40 years for the same company – to defined contribution plans, where employees have greater responsibility to plan and manage their own retirement. Kiplinger said that government agencies will also feel pressure to change the generous retirement benefits they have traditionally provided to long-term employees, at least for those hired under today’s changed circumstances.
With the recent application of new national accounting rules, public pension plans have discovered that they have new or increased unfunded liabilities. “Pension benefits were offered without fully accounting for the costs that will be incurred for future retirement,” Kiplinger said. “They essentially over-promised what could be delivered, and we’re now figuring how to sort that out.”
Kiplinger expects that public plans will soon follow the private trend toward defined contribution plans, at least for new hires. The alternatives of cutting payments to existing retirees or raising taxes to provide robust retirement benefits for new workers are likely to be less palatable, he said.
In addition to paying for retirement and covering existing obligations, Maine municipalities are likely to find it tougher to hire qualified managers and department heads than they have in the past. There just won’t be as many people at the start of their careers to fill the available posts.
There are a number of ways to deal with the shrinking employee pool, Kiplinger said. One is to pay higher salaries to better compete with the private sector, but that option has clear drawbacks at a time when municipal budgets are under intense scrutiny. Another is to redefine jobs as part-time, in the hope of attracting some of the many early retirees who are now, also according to U.S. Census data, flocking to Maine.
Many of those in the 50s and 60s who do retire with solid benefits from their previous jobs still want to work, Kiplinger said. Municipalities should be able to take advantage of their skills as long as they are willing to restructure positions to make them less demanding in terms of hours, Kiplinger said.
A third possibility is to explore administrative restructuring similar to what the state is now requiring of school districts. Kiplinger explained that overhauling government in this way “is never popular. No one really wants to do it.” Most people prefer existing arrangements, particularly where public services are involved, and there is generally no constituency for creating new regional agencies.
“The only reason it happens is financial necessity,” he said. “It really is the mother not only of invention, but entrepreneurial activity as well.” If there’s no alternative, “people will consider it, but it’s not their first choice.”
Kiplinger is no stranger to Maine, and visits the state every year or so. Before he took over at the family firm, he worked for 13 years in daily newspaper journalism. His stories from Washington about Congress and federal agencies were carried, through the Griffin-Larrabee News Service, in Maine dailies in Portland, Augusta, Waterville and Bangor. Later, he was bureau chief for Ottaway Newspapers, continuing to write about the federal government for home-state audiences. It’s a niche that has largely disappeared from journalism, at a significant cost to public understanding. “A lot of newspapers try to cover Washington by phone now, but you just don’t get the same kind of stories,” he said.
Kiplinger said that in his numerous public appearances he always talks “about what I know best, the national scene and the long-term trends that will affect our lives.” But he also tailors his focus to the individual states and regions where he appears, such as the serious challenges Maine will face concerning retirement and public employment.
Yet he remains largely an optimist about the future, often bucking the conventional wisdom. In the late 1980s, just before a national recession, he foresaw the business boom of the following decade, and said that the United States continues to be well positioned to maintain its role as world leader in future decades. “The world economy has clearly benefited from American consumers’ robust purchasing in recent years.” Now, he believes, it’s time to change roles a bit, with some economies abroad opening up opportunities for consumption while the United States becomes more of a “saving nation.”
While he says that younger workers face challenges in adapting to a new employment system, “they do understand what they’re facing. They’ll have to provide more for themselves and rely less on others taking care of them.” These younger workers “may not be there yet, but they can do it.”
While Maine’s municipal managers may face challenges, those who plan ahead will be in a better position to make a smooth transition, Kiplinger said. And in that sense, the future has as many opportunities as pitfalls.