Age 65 has long been considered the traditional retirement age, and not coincidentally is also the age of Medicare eligibility. According to recent statistics, the percentage of Americans 65 and older who are still in the labor force has risen to nearly 20%, the highest level since before Medicare was established in 1965 (1).
More than 9 million Americans aged 65 and older are working. This is a record number that is expected to rise in the coming decades, largely because of demographic and economic shifts (2). The first Baby Boomers have started to file for Medicare. About 8,000 Boomers will turn 65 each day until 2030 (3).
The U.S. economy is now dominated by service industries, which means there are plenty of employment opportunities that are less physically demanding. In addition, boomers enjoy better health and greater vitality than previous generations. Even so, an aging U.S. workforce paints a mixed picture, with some positive and negative implications for the long-term financial security of American retirees and the U.S. labor force.
U.S. employers have largely replaced traditional pensions with retirement savings accounts such as 401(k) plans, which are funded primarily by employee contributions. Unfortunately, many workers have not saved enough money to retire comfortably. In fact, nearly half of today’s retirees depend on Social Security for more than half of their income. Considering that the average benefit for retired workers is $1,341 per month in 2016, it’s apparent that some people must work as long as they can just to cover basic living expenses (4).
Retirement Reality Check
It’s not only workers of little means who are delaying retirement past age 65. Americans with plenty of financial resources are making the same decision. Of course, many Baby Boomers continue to work because they are highly satisfied with their careers or want to stay active and socially engaged. Others are anxious about the future and worried that their savings won’t last. Many would-be retirees see an opportunity to strengthen their financial positions before they give up a regular salary and employer-provided health and retirement benefits (5).
Health Is Wealth
Improvements in modern medicine and longer life expectancies are generally welcome developments, but they also increase the odds that retirees could outlive their assets. The life expectancy for a man who turns 65 today is 5.5 years longer than it was for a man who turned 65 in 1970. A woman’s life expectancy increased by three years over the same period (6).
The expectation of high future healthcare costs is also a major concern of prospective retirees. By one estimate, a typical 65-year-old married couple might spend $259,000 to cover their out-of-pocket healthcare costs in retirement (7).
Reasons to Work Longer
A major advantage of remaining employed is that you may be able to keep contributing to workplace retirement accounts instead of taking withdrawals. You could also take advantage of catch-up contributions to retirement plans, which are available to those who are age 50 and older, to boost your savings and retirement income.
The same thinking could apply to Social Security benefits, which many people may claim as soon as they stop working. Eligibility for the full Social Security retirement benefit ranges from age 66 to 67 (depending on birth year). If you delay claiming Social Security past full retirement age, your benefit would grow by about 8% each year, up to age 70. In theory, Social Security benefit calculations are actuarially neutral.
In other words, if you live an “average” lifespan, you should receive the same lifetime Social Security income regardless of when you begin collecting benefits. However, if you are relatively healthy, you might consider the possibility that you or your spouse could live well beyond that “break-even” point. Delaying Social Security benefits is one way to help ensure thousands of dollars in additional income every year for the rest of your life.
With so many Baby Boomers nearing retirement age and younger generations choosing to have fewer children, some people have predicted that the aging population could result in declining labor force participation and lower economic growth (8). If so, it follows that the U.S. economy stands to benefit if a larger pool of skilled, educated, and experienced workers remain in the workforce longer than their predecessors.
Recent studies have found that working may reduce age-related declines in cognitive function and improve overall health (9). Yet, it wouldn’t be wise for anyone to count on the ability to work indefinitely. About half of retirees left the workforce earlier than expected in 2015. Health problems were a commonly cited reason (10).
In a perfect world, the decision to retire would always be a matter of personal choice. Because there is no way to know what the future will bring, a commitment to saving throughout your career may give you more freedom to make that decision on your own terms.