Working Through Retirement

Are your clients putting away enough money for retirement or will they be working at the age of 70 to cover healthcare costs? According to a Boston College Center for Retirement Research brief by Leora Friedberg, an assistant professor of economics at the University of Virginia, and a research associate of the Boston College Center, the trend toward earlier retirement, which has persisted from the late 19th century well into the late 20th century, has not just leveled off, but has started to reverse. Released in March 2007, the brief reveals that the average retirement age has “flattened out,” prompting a debate among researchers as to whether the trend toward earlier retirement has stopped or just paused.

One train of thought posits that the trend has stopped due to economic, policy, and demographic changes, such as a diminishing dependence on Social Security and traditional pension plans. The other side stresses that long-run growth in incomes and the desire for more leisure suggest only a pause in the trend. A U.S. Census Bureau Current Population Survey on labor force participation rates by age and gender from 1950-2006 shows a general decline in men’s (aged 55+) labor participation rates through 1980, but that rates stabilized in the 1980s and early 1990s, and since then have begun to reverse. For women, a similar pattern exists at age 65 and older, though women aged 55-64 have increased their labor participation since 1990. Among men aged 65 and older, participation rates lingered at about 15% from 1984 until 1999 and then started rising gradually, reaching about 20% in 2006. Women in the same age range stayed below 10% through the early 1990s, rising to 11% in 2006. For men aged 55-64, participation rates rose from about 65% through the late 1990s to about 70% in 2006. For women aged 55-64, the rate remained just over 40% from the 1970s through the late 1980s and then rose steadily, reaching 58% in 2006.

According to the brief, some evidence suggests that jobs have grown more flexible for older workers, as those workers tend to take more part-time jobs while in retirement. This increase was particularly prominent among educated and well-off workers, suggesting an increase in demand for job flexibility. However, the brief also links these changes in retirement age with “increased uncertainty about the future economic environment surrounding retirement,” including the future viability of Social Security and potential benefit reductions, the risks associated with the shift from defined benefit to defined contribution pensions, and long-term care costs. This rise in uncertainty may require people to delay retirement in order to work and save more.

The Healthcare Cost Issue