Should what you do determine when you retire?

MADRID -- Retirement is for many the light at the end of the tunnel. But, what if, your retirement plans weren't the same as everyone else's, but were based on what you do? Or based on your individual, statistical life expectancy? The Rajoy government, following the advice of the European Commission, is considering just that, as they look to cut the biggest chunk of the Spanish annual budget -- pensions.

Last Friday, the Spanish government sent their perspective 2013-2014 budget to the European Commission, the executive body of the EU. This is to see how Spain plans to meet their deficit targets in 2014, before any more aid is promised.

Spain shares the same problem with the rest of the Western world: the baby boomers are a drain on the social security coffers. The main focus of of the newly-proposed budget is cuts to unemployment insurance--now paid to nearly a quarter of the Spanish population -- and indirect cuts to pension plans -- which makes up a quarter of the entire Spanish national budget for 120 billion euros.

Cutting pensions and raising the retirement age each decade is simply referred to as a "sustainability factor." Rajoy and his cabinet are exploring a "more sustainable" and variable retirement age "based on the evolution of life expectancy."  The average life expectancy in Spain is 81 and climbing.

The retirement and social security collection age was already pushed last year from 65 to 67. In the last decade, that age has increased from 61 to 63 and then to 65. The steps to raise the retirement age are all in-line with EU goals. Even though the 2012 budget just began, the 2013-2014 budget was presented to the European Commission last week, which is expected to complete the 102 billion euros in cutbacks the EU wants to see over the next three years.

One of Rajoy's goals is not to raise the set age of retirement higher than 67 -- yet --, but to make sure it's more greatly enforced. The effective retirement age is on average two years under the official age. In 2010, Spain had one of the highest averages in Europe at 63.5 years. One of the main goals of the budget sent to Brussels is to try to get the effective to meet the actual edad de jubilacion. When the standard was at 65, the average age to retire was 63. The trend seems to be following that now folks are stopping to work at age 65. Rajoy's team has sent a note along with their budget proposal, promising stricter laws about access to early and partial retirement to prevent further misuse of it. In addition, if companies push someone to an early retirement, they will now have to fund at least part of that pension. Right now, the government holds the entire burden of early retirees.

Another problem is that you can begin to collect retirement benefits currently at 67, but people do not have the option of waiting a bit to retire. Some Spanish, especially if they have lower-paying jobs, are willing to work until 70 years of age, but they don't have the option; retirement is a set process that you can, under current law, speed up, but not slow down.

Spain's business daily El Economista earlier this week had an article talking about how retirement should be a greater choice and that the laws extending the retirement age aren't even a bad thing, but that it must be a choice. The experts also countered the government's new policy against partial retirement. They think it's more natural to phase out the intensity, as well as phase out their income tax contributions. In general, it could be a smoother financial and professional transition for society as a whole.

When more than 100 billion euros from a budget, you need to get creative. The Rajoy government is even discussing predicting more specific life expectancy factors, like profession, into the retirement age.

Your life expectancy goes down when you work longer hours -- like sales, restaurant work or often mid-level management -- or when your trabajo is dangerous -- like police officers, firefighters, construction workers, loggers and deep-sea fisherman. Following this train of thought, since the construction backbone of the Spanish economy is broken, there are fewer people doing this back-breaking work, thus the general life expectancy will rise.

No matter what the age, the Spanish are not ready to see their pensions cut.

A recent survey by Accenture, subtitled "Majority of people globally are worried about outliving their money at retirement," found that 91 percent of the Spanish are worried about their financial situation after retirement., while a mere 17 percent think their savings will cover their financial needs upon retirement. The vast majority of the Spanish are worried what will happen to the future of their state-sponsored pension plans.

Since pension is part of the quasi-socialist government's package, there isn't a natural habit to save for retirement here. Up until the economic crisis, the focus of saving has always been in order to buy a home. Mortgages are often paid off before retirement, and then later, houses are usually passed down within the family. While saving is an idea, it's not something promoted through companies, who don't push for 401Ks or pension plans. You pay into the Social Security pension plan all your life and thus expect to depend mainly on that.

Of course, with nearly a quarter of the population unemployed and paying only the minimum in social security, it all comes back to Spain having a serious revenue problem.

Photo: Gobierno de España

This post was originally published on Smartplanet.com