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Average Retirement Age Leveling Off

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A report released in March by the Center for Retirement Research at Boston College studied labor force participation rates for men and women, which have been increasing steadily for several decades, to find the average retirement age. However, social and structural changes that worked together to increase participation rates may have less of an effect going forward.

For men, the average retirement age in 2013, which the report defined as the age at which the labor force participation rate drops below 50, was around 64. For women, it was around 62.

The new report is an update to a 2011 report by the Center, which found that for both men and women the average retirement age increased only two years to its current level over a 20-year period.

The report noted that prior to the mid-1980s, there was a long-term drop in work force participation among men that began around 1880. Alicia Munnell, director of the Center for Retirement Research and author of the report, attributed that decline to “unexpected and substantial stream of income from old-age pensions for Civil War veterans.”

Another big decline started after World War II, when Social Security benefits and employer pensions made retirement more attractive. Munnell attributed the “final leg of the decline” to the introduction of Medicare in 1965 and an increase in Social Security benefits in 1972.

In the mid-1980s, men 55 and older started participating more in the work force. Munnell gave several reasons for the continued turnaround affecting both men and women.

Changes to Social Security had a big impact. In 2000, the retirement earnings test was abolished for people ages 65 to 69. Increasing benefits for delaying retirement also made work more appealing.

Workers in a 401(k) plan tend to work one or two years later than those in a defined benefit plan, according to Munnell. As 401(k)s became more common than pensions, more workers were staying in the work force.

As jobs shifted away from the manufacturing sector and became less physically demanding, workers were able to stay in the labor force for longer. Better health and longevity in general made it easier to keep working, too. Munnell noted that the “correlation between health and labor force activity is very strong.”

Additionally, employers were less likely to provide health insurance for retirees, offering a strong incentive to work at least until they qualify for Medicare.

Culturally, more wives were working, and many couples like to coordinate their retirement, Munnell wrote. Because wives on average are three years younger than their husbands, those who retire at 62 push their husbands’ retirement age to around 65.

Education had an effect, too, as people with more education tend to work longer, according to Munnell.

Finally, Munnell suggested that at least some men keep working because they like it. “Until recently at least, their wages have been lower than those earned by their younger counterparts and lower than their own past earnings,” she wrote. “This pattern suggests that money may not be the only motivator.”

Munnell studied Census data from 1963, 1983, 2003 and 2013 and found that for each year, labor force participation for men between ages 50 and about 65 has remained significantly below the 1963 level. Work force participation falls steeply for that age group. Munnell put the average retirement age for men at about 64.  

Studying labor force participation among women over the same time periods came up with slightly different patterns. Each cohort worked longer than the one before it, Munnell found, and by 2013, more women were in the work force than ever before. She found the average retirement age for women was about 62.

“The leveling off of the average retirement age suggests that earlier drivers of working longer are no longer having a substantial impact,” Munnell wrote, noting that Social Security’s delayed retirement credit is fully phased in and DC plans are nearly ubiquitous in the private sector. Furthermore, she suggested “improvements in health may have stabilized and increases in longevity may not be salient.”

“Yet, working longer is the key to a secure retirement,” she said. “Monthly Social Security benefits claimed at age 70 are 76 percent higher than those claimed at 62. The fact that people are always amazed when presented with this information suggests that a major educational initiative may be warranted.”

— Check out Boomers’ Newfound Freedom Changes How They See Home on ThinkAdvisor.