Recent retirees and older workers on the verge of retirement face a different economic environment than before the Great Recession—even if it’s only been more than four years since it ended.
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The financial crisis not only dented many baby boomers’ nest eggs, it also reshaped our labor market and housing market. On top of those changes, the health insurance market has also changed over the last decade (especially recently), further complicating the outlook for baby boomers’ financial security when they reach their golden years.
A recent study by Brookings Institution economists Gary Burtless and Barry Bosworth found that the number of older people retiring later has increased after the recession. The study shows that boomers are working later, rather than retiring and taking their Social Security.
I spoke to Burtless, a senior fellow in economic studies at the Brookings Institution in Washington, D.C., to learn more about what the changing labor market means for boomers and their retirement. Here is what he had to say:
Boomer: How did the Great Recession impact the ability of boomers to retire early?
Burtless: The initial impact was to accelerate the retirements of some 55-70 year-olds – namely, those forced to accept involuntary layoffs, especially those laid-off workers who were unable to find equivalent jobs in a very depressed job market.
There is evidence for a spike in applications for Social Security retirement benefits in 2009-2010; with a lag there was also a spike in applications for Social Security Disability Insurance benefits. However, my analysis of the employment, unemployment and labor force participation statistics suggests that the underlying trend toward higher employment and labor force participation rates among 62-74 year-old workers quickly resumed when the layoff rate declined in 2010-2011.
If older workers did not get laid off from their jobs, they retained the option of continuing to work longer in the jobs they held compared with earlier generations of older workers. It appears that they took advantage of this option: The 62-74 age group is one of the very few that has higher employment and labor force participation rates in 2013 than it had in 2007. Age groups younger than 55 have lower employment and participation rates, especially teenager and young adults under 25.
Boomer: What are some of the differences found in trends toward later retirement and higher participation rates between men and women?
Burtless: A major difference is that women 55-74 belong to birth cohorts that have had higher employment and labor force participation rates throughout their careers compared with women born in earlier decades. That is, when these women were 35, 40, or 45 years old they were more likely to work than women who attained those ages a decade or more before them.
For men, on the other hand, employment and participation rates were typically lower during the prime working ages (25-54 years old) than the rates seen among men born one or two decades before them. Therefore, among women now between 55 and 74 part of the explanation for the rise in employment and participation rates is that a higher portion of the women this age had full labor market careers, and many held good jobs between ages 35-55. Still, it is remarkable how similar the retirement patterns of men and women are.
Among both sexes, people who are at work at age 55 are more likely to remain employed or in the labor force when they are 62, 65, 70, and 74 years old than was the case back in the 1980s or 1990s. And the increase in "employment persistence" is strikingly similar for both sexes. Also, for both sexes the increase in work and labor force participation rates at ages 65, 70, and 74 seems linked to educational attainment: The better educated the person, the more likely the person is to remain employed or looking for a job.
Boomer: What impact does this have on the labor market and unemployment?
Burtless: In an economy where there are about three job seekers for every one job vacancy, the willingness of workers 62 and older to remain longer in their jobs probably hurts the employment rates of 25-54 year-old workers, some of whom may have filled jobs that would have been available if the older workforce retired at a younger age.
I do not believe there is much evidence that high employment and labor force participation rates of people 62 and older have an adverse effect on employment or labor force participation rates of 25-54 year-olds when the economy is close to full employment. However, as long as the nation’s unemployment rate remains high, delayed retirement among workers past 62 probably hurts the job prospects and employment rates of younger workers.
Boomer: Will the Affordable Care Act contribute to baby boomers decisions on remaining in the work force past retirement age?
Burtless: The ACA will have little if any effect on the population 65 and older except through its impact on the Medicare program. (Some people enrolled in Medicare Advantage plans will see premium increases or service cuts; all enrollees in Part B and Part D with high incomes will pay higher Medicare premiums.) A small percentage of people past 65 will have to pay higher Medicare payroll taxes or income taxes on their investment income.
The main effect of the ACA on older workers and non-workers will be through its impact on insurance markets. Everyone will be offered an "affordable" insurance plan regardless of employment status and existing health conditions through new state insurance exchanges. This will reduce the willingness of some workers, who are currently chained to their jobs to obtain insurance to remain employed in order to retain their employer-sponsored insurance. I expect employment rates of 55-64 year-olds may drop a bit as a result. In addition, some people may give up jobs with health insurance to take jobs with less strenuous hours or less demanding working conditions, even if those jobs do not provide employer-sponsored insurance. All these changes should improve the well-being of 55-64 year-olds, even if they also reduce somewhat their willingness to hold full-time jobs (or any jobs at all).
Boomer: What impact can early retirement have on boomers overall retirement security?
Burtless: If you are worried about retirement income security, I can offer two pieces of simple advice: delay your exit from the labor force and claiming your Social Security benefits.
Working as late as possible given your health condition and ability to find an employer willing to hire you will help increase your savings. Delaying acceptance of Social Security retirement benefits as late as possible can also help your household’s budgetary needs. If you have normal life expectancy and want a secure retirement, collecting your first Social Security retirement check at 66 is better than claiming it at 62. Delaying your benefit claim until age 70 is better still. These two recommendations increase your income at ages past 70 when you may have poor chances of obtaining work.