(By Mani) Many of the seniors, especially baby boomers, want to work past 65 years as the pressure of the Great Recession exacted on individual balance sheets probably convinced some seniors that they could no longer afford to retire, at least not as early as originally planned.
In a 2011 Wells Fargo Retirement Survey, three-fourths of respondents planned on working past age 65 and many of these individuals plan to work only because they "want" to work. Workers age 65 and over tend to be more educated than their peers, are more likely to work part time, be self-employed and work in non-physically demanding jobs.
The median value of financial assets for households headed by a person age 65-74 fell 22 percent between 2007 and 2009. Although the partial retracement of overall household wealth over the past two years suggests that the median value for seniors has recovered somewhat, most households are probably still less wealthy today than they were five years ago, thereby inducing some seniors to remain in the labor force.
That said, the employment-to-population ratio for seniors started to trend higher well before the Great Recession began, suggesting that some longer-term factors must be at play.
One of the drivers leading to higher labor market participation for the population over 64 may be the shift to defined contribution retirement plans that have occurred over the past two decades from defined benefit plans. From 1990 to 2011, the percentage of full-time employees in the private sector participating in a defined benefit plan fell to 22 percent from 42 percent, while workers participating in defined contribution plans rose to 50 percent from 40 percent.
"This shift to defined contribution plans has altered the incentives for working past age 65, as workers can continue to increase their retirement savings while not forfeiting any benefits," Wells Fargo economist Jay Bryson wrote in a note to clients.
On the other hand, the monthly pension for many workers with a defined benefit plan is often high enough to convince these individuals to choose more leisure rather than marginally higher income from continued employment.
In addition, changes to social security benefits have also altered the incentives to working later in life. The age at which individuals can begin to collect full retirement benefits was moved incrementally higher through the Social Security Act amendments of 1983 to 67 for those born after 1959 from age 65 for those born before 1938.
Although payment reductions for retiring before full retirement age (FRA) have increased, all individuals are still eligible to collect benefits at age 62. Waiting until after FRA to collect benefits increases credits, making it more attractive for individuals to delay claiming benefits and to continue earning income.
Furthermore, the elimination of the retirement earnings test for workers above FRA has also provided additional incentive for those who have already claimed benefits to continue working. The retirement earnings test reduces the amount of benefits to current claimants if earnings are over a defined threshold.
"By not drawing down savings in defined contribution plans and increasing the value of Social Security payments by delaying claims, estimates have shown an additional year of work can increase annual retirement income by 5 percent for workers over 50," Bryson added.
Meanwhile, advancements in medical care have also pushed retirement back for many individuals, as life expectancy has increased. The number of years a 65 year old should expect to live rose 3.4 years to 18.6 years from 1970 to 2007. Savings will, on average, need to last longer for today's retirees than it did for prior generations.
In addition, improving technology and a shift toward a more service-oriented economy has led to a decline in the share of workers employed in physically demanding jobs. The percentage of workers age 50 and over in jobs with any general physical demands, such as strength, crouching and repetitive motions, fell by about 18 percentage points between 1971 and 2006.
This shift toward a service-oriented economy has allowed more workers to continue their careers past age 65, because workers in physically demanding jobs are more likely to claim Social Security before full retirement age than service workers.