Working Longer Was A Retirement Plan Until It Wasn’t

The current recession shows an odd pattern among older workers. Unlike in prior recessions, the unemployment rate is higher among older workers than among younger ones. Many keep looking for work, because they have little or no savings, when in the past they would have retired.

The unemployment rate is especially high among workers 65 years old and older. Their unemployment rate averaged 10.8% from March to June 2020. In comparison, the unemployment rate for those 55 to 64 years old was 9.0% and it was 8.6% for those 45 to 54 years old. Unemployment rates usually go down as age goes up, but not in this recession.

These differences reflect a longer-term trend of older people working longer, especially among those 65 years old and older. The prolonged labor market expansion from October 2010 to February 2020 gave many people job opportunities, including those who usually encounter particularly high hurdles to finding work. The employment-to-population ratio of workers age 65 and older (averaged over 12 months to smooth out seasonal fluctuations) grew from a low of 16.2% in June 2009, when the Great Recession ended, to 19.7% in February 2020, just before the pandemic began. Thus continued a decades-long trend of growing employment among older workers that started in 1985, when on average less than 11% of people age 65 plus had a job. In February 2020, their employment-to-population ratio was at its highest level since 1961. Furthermore, over the past four and a half decades, the share of people age 65 and older, who worked, almost doubled. The share of older worker out of the total labor force went up even more as the share of people 65 years old and older also increased. Older workers’ employment grew because of more jobs for them in an aging society.

The lack of savings plays a large part in older workers working longer. In the past two decades, for instance, the average retirement age has gone up among those with little savings, while it has actually fallen among those with a lot of wealth. For those people with jobs at age 65 or older in 2019, almost one-in-five were working part-time in order to supplement their retirement income. Working longer offered a solution to the retirement crisis for many older workers.

But that solution evaporated when the recession hit. From 2019 to 2020, half of all job losses among workers 65 years old and older happened to people who had been working part-time for reasons related to their retirement income, even though this group only represented about one fifth of workers age 65 plus in 2019. That is, people who had worked to supplement their retirement income lost jobs at two and half times the rate of their employment share in the span of a few months.

Confronted with such massive job losses, older workers can choose to retire or to keep looking for a new job. The unemployment rate data already suggest that older workers in particular chose to stay in the labor market and look for a new job, given that the unemployment rate only includes those looking for work and is especially high among older workers in this current recession.

Since older workers now tend to stay in the labor market longer than in past recessions, we would expect this to affect Social Security benefits. In the past, older workers may have chosen to retire early upon losing their jobs in a recession. Yet, retiring before reaching full retirement age means accepting permanently lower Social Security benefits. For this reason, average Social Security benefits quickly dropped in past recessions before eventually growing again (see figure below). This time, older workers often keep working and, therefore, average Social Security retirement benefits increased, rather than stalled, for the first four months of the recession (see figure below). Early retirement does not seem to be an attractive option for many who lost their jobs, because they need the extra income to make ends meet. With insufficient savings for retirement, they may also be more wary of accepting the lower Social Security benefits that come with early retirement, even if they struggle to find work.

The retirement crisis is playing out right before our eyes. Many older workers kept on working to supplement meager savings, amid high health care costs, widespread debt and caregiving responsibilities for family members. With temporary job losses turning increasingly permanent, many older workers will eventually leave the labor market for good and face a less than golden retirement.