The past 15 months haven’t been easy for anyone, but older workers experienced a unique set of circumstances that increase their risk of financial challenges in retirement. As the American population continues to age, the outcomes of those in the workforce age 55 and older must be front-and-center in the minds of policymakers in charting the post-pandemic path.
Even before COVID-19 arrived, older workers found themselves under-prepared for retirement. For example, those without a college degree had a median retirement savings of just $9,000 in 2019. Social Security, on average, only replaces only 40% of pre-retirement income. Lacking sufficient savings, too often individuals need to find a way to make up the difference to maintain their prior standard of living.
The idea that Americans can simply remain employed longer and delay retirement to make up the difference between what they need and what they have saved overlooks the challenges that older workers face, including health conditions, caregiving responsibilities, and age discrimination. With nearly a quarter of the U.S. workforce older than age 55, the impact of these pressures will be felt by not just the individuals and their families, but the economy as a whole.
The pandemic has highlighted the difficulties that older Americans face in working longer. Analysis of government data indicates that the retired population expanded by 1.7 million more people than pre-COVID trends would have suggested. While many of these workers have elected to retire voluntarily to possibly avoid COVID-19 at the workplace, to provide childcare or support for other relatives, or because they have reassessed their work/life priorities, others have left the workforce involuntarily and may never return due to grim job prospects, lack of skills, or health reasons. Regardless of the reason, retiring earlier than expected will have a significant impact on their retirement security.
The reality is that the labor force participation rate for older Americans is “roughly half the rate of prime-age workers (aged 25–54),” according to a study by the Brookings Institution. Premature retirement will only serve to further widen the gap while putting increased pressure on policymakers to address the retirement savings crisis. And it is important to note that the lack of participation is not always voluntary. During the strong pre-pandemic economy, 1 million Americans over age 55 were unemployed, with an additional 1.5 million who gave up looking and were counted as out of the workforce.
While personal and family circumstances may have hindered some from finding employment, another important factor is age discrimination. Although the Age Discrimination in Employment Act (ADEA) became law in 1967, there continues to be resistance to employing older workers. According to the Brookings Institution, recent court rulings have weakened the ADEA and research indicates it may be better at preventing wrongful terminations than addressing biased hiring decisions.
As it did with other age cohorts, the pandemic also had a disproportionate impact on older Americans in some racial and socioeconomic groups. In fact, those with higher levels of education were more likely to delay retirement, with the share of retired workers with a college degree decreasing by 4% while rising by 5% for those without. Black workers under the age of 65 were more likely to retire early during the pandemic, with the share of those Americans saying they were retired increasing from 16.4% in 2019 to 17.9% today, according to the Schwartz Center for Economic Policy Analysis at the New School for Social Research.
These numbers appear to be largely influenced by the inability to find employment. As the Schwartz Center notes, during the peak of the lockdown period, in April 2020, “workers 55 to 64 without a college degree were 67% more likely to experience unemployment than college-educated older workers.”
COVID-19 has had a greater impact on older workers than even the 2008 Great Recession. The Center for Retirement Research at Boston College found that both high and low earners fared worse in 2020. Among the oldest workers (those age 62 and older), the gap between the two groups was significant, with 38% of lower earners choosing to retire during what is being called the COVID Recession compared to just 22% of higher earners.
Of course, many Americans don’t simply flip a switch and go immediately from working one day to retired the next. For many, it is a more-gradual process that may involve changing jobs or reducing hours. Some of those shifts could be by choice, but many are dictated by health concerns. This is especially true for workers in manual jobs. David Neumark of the Brookings Institution notes that “many older workers move from their career jobs to jobs that are less physically demanding” as they age.
As the American economy rebounds from the pandemic and individuals of all ages begin to return to a sense of pre-COVID normalcy, the long-term impact on older workers remains in doubt. Much more still must be learned to provide the ability to tailor appropriate solutions.
Will those who retired early opt to reverse course and attempt to return to the workforce? Will they seek to return in capacities or positions that are less demanding? What will be the impact of the premature use of retirement savings and the lost contributions that resulted from unemployment or under-employment during the pandemic?
To prevent undesirable outcomes for many Americans, policymakers must urgently address the combination of new and existing factors that drive the retirement savings crisis. The solution lies in a comprehensive suite of policy choices that make it easier for older individuals to find and keep work, improved options for retirement savings to supplement Social Security, and better solutions for managing those savings to generate lifetime income for retirees.
Government alone cannot and will not provide all the answers. Employers must be prepared to ensure that they have fair and open hiring practices that don’t discriminate against older Americans looking to remain in (or return to) the workforce. Because the burden of preparing for a financially secure retirement continues to shift to workers, employers also need do their part in providing easy retirement savings vehicles, coupled with the education necessary to guide their employees through the process.
While the retirement savings crisis was already on the minds of many even before the pandemic, COVID-19 exacerbated the existing gaps and further weakened the economic circumstances of the most vulnerable. Americans left the workforce in large numbers, imperiling their ability to enter retirement on a strong financial footing. For those workers nearest to retirement, it’s time for policymakers and employers to find meaningful solutions.