Older Workers: Employment and Retirement Trends

As the members of the “baby boom” generation — people born between 1946 and 1964 — approach retirement, the demographic profile of the U.S. workforce will undergo a substantial shift: a large number of older workers will be joined by relatively few new entrants to the labor force. According to the Census Bureau, while the number of people between the ages of 55 and 64 will grow by about 11 million between 2005 and 2025, the number of people who are 25 to 54 years old will grow by only 5 million. This trend could affect economic growth because labor force participation begins to fall after age 55. In 2006, 91% of men and 76% of women aged 25 to 54 participated in the labor force. In contrast, just 70% of men and 58% of women aged 55 to 64 were either working or looking for work in 2006. The rate of employment among persons age 55 and older is influenced by general economic conditions, eligibility for Social Security benefits, the availability of health insurance, and the prevalence and design of employer-sponsored pensions. Labor force participation among people 55 and older may, for example, be affected both by the trend away from defined-benefit pension plans that offer a monthly annuity for life to defined contribution plans that typically pay a lump-sum benefit. The declining percentage of employers that offer retiree health insurance also may result in more people continuing to work until they are eligible for Medicare at 65. Recent Census Bureau data show that the percentage of men and women age 62 and older who work in paid employment has risen over the past 10 years. In March 2007, 49% of men aged 62 to 64 were employed, compared with 43% in 1995 and 42% in 1990. Of men aged 65 to 69, 33% were employed in March 2007, compared with 27% in 1995 and 26% in 1990. Among women 62 to 64 years old, 42% were working in March 2007, compared with 32% in 1995 and 28% in 1990, whereas among women 65 to 69 years old, 26% were working in March 2007, compared with 17% in 1995 and 1990. There also has been a trend toward more full-time employment among older Americans who work. In March 2007, 81% of employed men aged 62 to 64 were working full-time, compared with 77% in 1995 and 1990. Seventy-one percent of men aged 65 to 69 who were working in March 2007 were employed full-time, compared with 57% in 1995 and 56% in 1990. Among working women aged 62 to 64, 69% worked full-time in March 2007, compared with 60% in both 1995 and 1990, whereas among working women aged 65 to 69, 54% were employed full-time in March 2007, compared with 43% in 1995 and 44% in 1990. As more workers reach retirement age, employers may try to induce some of them to remain on the job, perhaps on a part-time basis. This is sometimes referred to as “phased retirement.” Several approaches to phased retirement — job sharing, reduced work schedules, and rehiring retired workers on a part-time or temporary basis — can be accommodated under current law. Under the recently enacted Pension Protection Act, a pension plan can begin to pay benefits to workers who have not yet separated from the employer at the earlier of age 62 or the pension plan’s normal retirement age, which in most plans is 65. Some employers would like to be able to pay partial pension distributions to workers who have reached the pension plan’s early retirement age. This would require a change in federal law