Improved health, changing job characteristics and Social
Security rules are responsible for the graying workforce
Over the past two decades, the share of older workers increased
by about one-third as more women continued to join the workforce and fewer men
retired early, according to a new Congressional Budget Office report that
examines why more seniors are working longer. The report offers some
interesting insights into the trend.
After declining for decades, the share of
people in the United States from ages 55 to 79 who were employed began to
increase in the mid-1990s. In 1995, 33% of people in that age range worked. By
2018, 44% did.
The changes in the level of employment of
people from ages 55 to 79 — the period during which many people stop working —
were related to changes in their demographic characteristics, such as improved
health and increased education; a shift away from labor-intensive blue-collar
jobs; and changes in Social Security rules, the CBO report found.
During that same period, the prevalence of
both defined-benefit retirement plans and health insurance for retirees
decreased. Those changes also are associated with workers' staying on the job
longer as a way to boost their savings and delay retirement
until they qualify for Medicare at 65.
In fact, a new study from
the Center for Retirement Research at Boston College found that the only way to
make dramatic progress in reducing the percentage of working-age households
that are at risk of falling short in retirement is to boost 401(k)
contributions by 5 percentage points and to work two years longer.
Evolving Social Security policies over the
years have also made working in one's 60s more attractive, the CBO said.
Between 1990 and 2018, the age at which people
become eligible for full retirement benefits increased, thereby increasing
people's incentive to delay claiming their benefits and stay employed longer.
The full retirement age has gradually risen from 65 (for those born before
1938) to 66 (for those born from 1943 through 1954) and eventually will
increase to 67 (for those born in 1960 and later).
In addition, the parameters of the retirement earnings test have
been relaxed over the years. The earnings test determines to what extent benefits
are temporarily withheld for Social Security claimants of certain ages whose
earnings are above certain thresholds.
In the early 1980s, the oldest age at which
wages were subject to earnings restrictions fell from 71 to 69. In 2000, that
age was further reduced to full retirement age, which was 65 at the time and
later rose to 66.
In 2019, someone who is under full retirement
age for the entire year and who continues to work can earn up to $17,640
without losing any Social Security benefits. Earnings above that limit
temporarily reduce their Social Security benefits by $1 for every $2 over the
limit.
In the year they reach their full retirement,
there is a more generous limit. In the months preceding their 66th birthday,
they can earn up to $46,920 and would forfeit just $1 in benefits for every $3
earned over the limit in 2019. The earnings restrictions disappear at full
retirement age and any forfeited benefits would be restored in the form of
higher monthly benefits in the future.
Lowering the oldest age at which earnings are
subject to the test allowed more people to claim their full Social Security
benefits while they continued working.
For example, people in their 60s with annual
earnings of $50,000 and annual Social Security benefits of $20,000 who were
born in 1910 would have had most of their benefits temporarily withheld if they
claimed them between age 62 and 70 because of the lower earnings cap and higher
age limit in effect at the time. People with the same characteristics who were
born in 1950 could collect their full retirement benefit at age 66 and were no
longer subject to the earnings test.
A separate survey conducted for
Provision Living Senior Living Communities in St. Louis
also looked at why people are working longer. The survey, conducted in August,
asked more than 1,000 people between the ages of 65 and 85 why they continue to
work either full- or part-time. The average age of those surveyed was 67 and
respondents were 60% male and 40% female.
More than 60% of the respondents in the
Provision Living survey said they continue to work for financial reasons,
including not being able to afford retirement (37%), supporting a family (23%),
paying off debt (19%) or a mortgage (13%), or saving for a big expense (4%).
The remaining respondents, representing 32% of
those surveyed, said they continue to work for personal reasons such as
enjoying working (45%), preventing boredom (18%), shifting to part-time
employment (6%) or avoiding loneliness (6%).
The average retirement savings of the seniors
in the Provision Living survey who are still working is about $133,000. Average
savings are higher among college-educated respondents ($169,000) and lower for
seniors without a college education ($80,000).
Most of the working seniors said Social Security will
be their primary source of income after retirement (70%), followed by pension
and 401(k) income (37% each), personal savings (27%), stocks (20%) and support
from family (11%).
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