Choosing when to retire is a crucial decision for workers. Working longer increases lifetime earnings, Social Security and employer-sponsored pension credits, and other savings, and shortens the period over which retirement savings must be spread.
On average, working an additional year increases annual retirement income about 9%.
Working an additional five years boosts annual retirement income about 56%.
The impact is even larger for people at the lower end of the income distribution. Boosting labor supply at older ages also increases government tax revenue.
The government would raise about $180 billion in additional tax revenue in 2045, measured in 2006 dollars, if all workers delayed retirement by one year, reducing the unified federal deficit by an amount equal to 28% of the Social Security deficit.
Additional tax revenue in 2045 raised by delaying retirement 5 years would exceed $1 trillion, more than 150% of the Social Security deficit.
Working longer may also improve emotional well-being and physical health.
Because work is crucial to many workers' personal identities, retirement can lead to a partial loss of identity, especially for those who retire abruptly.
Work promotes social integration and social support.
Staying active may promote physical health. What Are the Characteristics of Today's Older Workers?
In
2004 about three-quarters of men age 55-61 were employed. Male employment rates fell to about 53% at age 62-64, about 38% at age 65-69, and about 26% at age 70-74.
Older women are less likely to work for pay than older men. In 2004, female employment rates were about 50% at age 55-61, 40% at age 62-64, and 28% at age 65-69.
Employment rates at older ages increase with education, and are higher among those in better health than those in worse health. Among men, whites have higher employment rates than African American. Black-white employment differentials are smaller among older women than older men. Many older workers are self-employed, and self-employment rates increase with age.
In 2004, about 45% of working men age 70-74 were self-employed, compared with 29% at age 62-64.
About 28% of job changes following retirement from long-term career jobs involve transitions from wage and salary employment to self-employment.
Self-employment rates increase with education among older men; about 56% of working male college graduates age 70-74 were self-employed in 2004.
Self-employment rates are lower among older women than older men.
Part-time and part-year work is common at older ages.
About 42% of employed men age 65-69 and 62% age 70-74 worked part-time in 2004. Part-time rates for women were about 59% at age 65-69 and 73% at age 70-74.
About 56% of job changes following retirement from long-term career jobs involve transitions from full-time work to part-time work.
At age 65-69, about 30% of employed men and employed women worked only part of the year, less than 50 weeks, in 2004.
Traditional retirements, involving direct transitions from full-time work to no work, are not the norm.
About 60% of older people work after retiring from career jobs.
About one-third of workers change occupations after age 51.
About one-quarter of older adults 'unretire' returning to work after leaving the labor force.
Many older people lose their jobs or stop working because of health reasons.
About 21% of workers age 51-55 in 1992 were subsequently laid offbefore age 62.
About 25% of workers age 51-55 in 1992 subsequently developed health-related work limitations before age 72, including 32% of those who did not complete high school.
About 35% of older workers who left fulltime jobs between 1992 and 2006 separated for health reasons or because of layoffs, including 39% of African Americans, 42% of Hispanics, and 45% of those who did not complete high school.
How Has Older Americans' Labor Supply Changed in Recent Years?
After declining for most of the 20th century, labor force participation rates for older men have been increasing during the past two decades.
Between 1992 and 2007, participation rates for men age 62-64 increased from 41 to 51 %, an increase of 24% over the 15-year period. Over the same period, male participation rates at age 65-69 increased from 22 to 34%, an increase of about 55%. Participation rates grew more slowly at age 55-61, increasing from 71 to 76% between 1992 and 2007.
College graduates generally experienced sharper increases in participation rates than those with less education. Between 1992 and 2007, for example, male participation rates increased 10% for college graduates age 62-64, while increasing only 5% for men with only high school diplomas.
Participation rates for older women were relatively constant between 1968 and the late 1980s, but they have been increasing steadily since 1988.
Between 1988 and 2007, participation rates for women age 55-61 increased from 44 to 64%, while increasing from 25 to 43% at age 62-64.
Participation rates doubled between 1988 and 2007 for women age 65-69, to 26%, and for women age 70 and older, to 8%.
Recent Social Security reforms also appear to have increased labor supply at older ages.
The retirement earnings test, which reduces Social Security payments to beneficiaries with earnings above certain thresholds, was eliminated in 2000 for people beyond the normal retirement age.
The normal retirement age began increasing for people born after 1937, and will rise to age 67 for those born after 1959. As a result, those who take early benefits now experience larger actuarial reductions in their monthly benefits than in the past.
The delayed retirement credit has been increasing gradually. For people born in 1943 or later, monthly benefits will increase 8% for each year that beneficiaries delay claiming benefits beyond the normal retirement age, but before age 70.
Concerns about retirement security appear to have contributed to increasing labor force participation rates at older ages.
Much of the increase over the past dozen years in expected retirement ages among adults in their early 50s appears related to the decline in employer-sponsored defined benefit pension coverage and retiree health insurance offers.
Defined benefit pension plan coverage plummeted between 1980 and 2006, falling from 39% of the private-sector wage and salary workforce to 20%.
Many employers are eliminating retiree health insurance or providing less generous coverage than they provided in the past. Between 1993 and 2005, the share of private-sector employers with 500 or more workers offering retiree health benefits to retirees younger than age 75 fell from 46 to 29%.
Health gains at older ages may also have boosted labor force participation rates.
The share of people age 55-64 and age 65-74 describing their overall health as fair or poor has declined steadily since 1982.
Health gains, however, have slowed since the mid-1990s, and rising obesity and diabetes rates may presage future health declines.