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Retirement Planning > Saving for Retirement

Boomers turn on, tune in, drop out of labor force

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(Bloomberg) — When Robin McLane’s generation hit public schools in the 1950s, there were never enough classrooms or teachers to accommodate the bulge, she said. So she’s not surprised about the latest shock that boomers are delivering to the U.S. economy.

“People all around me, relatives and friends, are either retiring, or they’re finding it’s very difficult to find work anywhere from 55 on,” said the 65-year-old, who lives in Portsmouth, New Hampshire, and retired from her job as a high school literacy specialist in June. “For me, I was ready to move on.”

The share of Americans in the labor force, known as the participation rate, is hovering around an almost four-decade low as the population ages and discouraged job seekers give up looking for work. Federal Reserve research shows retirees are at the forefront of the recent exodus, which blunts the impact of policy aimed at boosting the economy and workforce.

In the two years ended 2013, 80 percent of the decrease in labor force participation was due to retirement, according to calculations by Shigeru Fujita, a senior economist at the Federal Reserve Bank of Philadelphia. And while the number of discouraged workers rose sharply during and after the recession, the group’s ranks have been roughly unchanged since 2011.

That tilts the debate on whether the participation rate can fully rebound alongside the improving economy, as retired workers are unlikely to re-enter the workforce, said Michelle Girard, chief U.S. economist at RBS Securities Inc., in Stamford, Connecticut. A tighter supply of workers means wage pressures would build faster than otherwise, something Fed Chairman Janet Yellen may watch as a leading indicator of inflation, Girard said.

Dropping out

“Even when the employment situation improves and the job prospects improve, it’s unlikely that this group is going to be enticed back into the labor market,” Girard said. “The implication is, well, if they’re out for good, you may not have as much slack in the labor market as you think.”

The labor-force participation rate for all ages was 63 percent last month, within 0.2 percentage point of its lowest level since March 1978, according to Labor Department data.

Workers who are marginally attached to the labor force — people not looking for work who would still take a job if one were available — have a 62 percent transition rate into the workforce, separate Fed research shows. In contrast, those who have dropped out, do not want a job and are not looking for one have a 5 percent transition rate.

‘Baby boomers’

The term ‘baby boomers’’ refers to the cohort of people born in the U.S. from 1946 to 1964, when a dramatic increase in birth rates followed World War II. The generation grew up in a time marked by change and protest, ranging from the civil rights movement and the Vietnam War to a counterculture popularized by former Harvard University psychologist Timothy Leary’s phrase — “Turn on, tune in, drop out” — that embraced drug use and questioned authority.

The sheer size of the boomer generation is overshadowing the fact that participation rates for older workers, although lower than other age groups, have been steadily rising during the past two decades.

Workers 55 years old and older are projected to make up 25.6 percent of the labor force in 2022, versus 20.9 percent in 2012, according to a Bureau of Labor Statistics report. U.S. residents in that age group had a participation rate of 40.3 percent last year, compared with 81 percent for those 25 to 54, considered prime working years. For Americans 65 and older, the rate is 18.7 percent, up from 12.5 percent two decades ago.

‘Dramatic change’

“It’s been a very dramatic change in labor force participation because we’ve had a very dramatic change in the demographics,” said Alicia Munnell, director of the Center for Retirement Research at Boston College in Chestnut Hill, Massachusetts.

While some Americans may choose to retire, others may be driven into it by unemployment following the deepest recession since the Great Depression, a report from the center this month showed. Some 44 percent of older Americans stopped looking for work a year into their job hunt, and those with access to a faster exit through Social Security benefits or pensions quit searching even sooner.

“They really don’t have the stomach for a very long job search,” Munnell said. “If they are eligible for Social Security, they kind of give up and say, ‘I’m going to retire.’”

Slower workforce growth may limit gains in potential gross domestic product to 2.6 percent on average over the next eight years, the BLS report states, compared with an average 3.1 percent rate in the decade leading up to the recession.

Never retire

Still, not all boomers are counting down the days until retirement. Almost half of those still employed say they don’t expect to retire until they are 66 or older, including some who say they’ll never stop working, according to a Gallup poll published Jan. 20.

When Lynda Cantu, 57, retired from her job as an administrative assistant for Concordia Parish School Board in Louisiana, she was looking forward to the extra time she’d get to spend with the grandchildren.

It turned out she wasn’t as ready as she thought, and she missed getting out of the house every day. Joining a friend who found herself in a similar situation, Cantu now works in a pool, restaurant and welding-supply store across the river in Natchez, Mississippi, where she sets her own hours. She’ll stop working when “the job is done.”

“I knew that once I retired, with savings and planning, that I would be taken care of,” she said. “It wasn’t a financial concern,” said Cantu, who worked with the school system for 38 years. “Going back to work, that’s just the gravy. That’s play money.”

401(k) balance

Others are being convinced to retire after Fed stimulus known as quantitative easing contributed to a rally in stocks following the economic slump, helping rebuild financial safety nets, according to Torsten Slok, chief international economist at Deutsche Bank AG in New York. The average balance in 401(k)s, the retirement savings plans provided by some companies, for people in their 50s and 60s reached a record $168,384 last year, surpassing the pre-recession high in 2007 by 42 percent, according to Deutsche Bank calculations.

“The Fed did QE and has managed to get the economy to come back,” Slok said in an interview. “The tragic irony is that the higher stock market will cause some people to leave the labor force sooner,” which will diminish long-run growth. Fed policy is aimed at boosting the economy and the labor market.

For whatever reason they exit, retirees have one of life’s luxuries to look forward to, McLane said: leisure time. She’s using hers to figure out where she wants to travel in the coming years — her next stop is Sedona, Arizona, with friends from her book club — and to experience things she’s missed.

“The middle of the day is so wonderful,” McLane said. “I go to aquacise two days a week. I just went to visit some of my cousins the other day and we had brunch together. The amount of time that you have when you gain 40 hours is incredible, and so much fun, too.”


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