Thus, the glass can be viewed as half full or half empty. When housing equity is ignored, the typical household seems to be barely saving adequately or just missing. When housing is included, over two-thirds of households appear to have more than the minimum needed, given their age and other factors. Roughly speaking, a third of the sample is doing well by any measure, a third is doing poorly by any measure, and the middle third is or may be just hanging in there.
Both of the following statements are equally true. Up to two-thirds of the households are now saving at least as much as they should be. In short, two key factors matter tremendously to any characterization of the problem: the heterogeneity of saving behavior across households and uncertainty concerning the right measures of wealth to use.
Average age at retirement, which fell through the 20th century for men, may start rising regardless of the adequacy of saving. The normal Social Security retirement age will rise to 66 by and 67 by even if no further changes are made in Social Security. Partial retirement may matter as well. Many retirees cut back on work gradually rather than abruptly. According to a study by economist Christopher Ruhm, only 36 percent of household heads retire immediately at the end of their career jobs.
Nearly half remain in the labor force for at least ve years. Of workers eligible for a pension, 47 percent continue to work after leaving their career job.
If people continue to work even after retirement, they will be better able to support living standards in retirement. A related uncertainty involves life span. Expected remaining life spans of 65 year-olds have grown in the past two decades and are projected to grow further. Living longer means having to stretch a given amount of money over a longer period. Uncertainty regarding home equity is twofold. First, how will housing prices evolve?
Both demographic pressures and the reduction in tax rates in the s may reduce the long-term value of housing. And, second, regardless of housing values, to what extent should housing be counted as part of household wealth? In recent decades, the elderly have been reluctant to cash in their housing equity. But baby boomers have been willing to extract housing equity and were major recipients of home equity lending booms in the s and s.
It remains to be seen whether the boomers in retirement will act more like themselves in earlier years or like current retirees. Asset markets too are uncertain. Equity values cannot continue to grow as rapidly as they did in And even if the boomers accumulate what seem to be sufficient retirement funds, they will, loosely speaking, all want to cash in those funds at roughly the same time.
That could mean massive sell-offs of stocks and bonds that could depress asset prices. Conceivably asset prices could fall sharply, but since markets are forward looking, asset prices may instead be stagnant for a long period.
Finally, the evolution of health care costs and of the economy as a whole could have a major impact on the adequacy of retirement preparations. The retirement prospects for the baby boomers are uncertain. Perhaps in response to these various trends, older adults are now working longer than they did about 20 years ago. Several surveys have also suggested that boomers intend to work into old age.
A recent MetLife survey found that boomers are increasingly concerned about their ability to afford an early retirement MetLife Mature Market Institute, A closer examination of retirement expectations for the leading edge of the baby boom cohort and the factors influencing those expectations may shed some light on how quickly the generation will exit the labor force. This study compared the retirement expectations of workers aged 51 to 56 born between and early boomers to those of workers in the same age group born 12 years earlier, between and the prewar generation.
Expectations appear to be reliable predictors of actual retirement behavior Dominitz, We first compared retirement expectations and demographic and economic characteristics for each generation. Then we modeled expectations for both generations to examine the key factors influencing anticipated labor force exits. Finally, we used the estimated regression coefficients and differences in characteristics to identify the forces that appear to drive generational differences in retirement expectations.
The survey collects detailed information on retirement expectations, health status, employment, income, assets, employee benefits, and other topics. It oversampled African Americans and Hispanics but includes sample weights so that estimates represent the underlying national population. Our sample consisted of all respondents aged 51 to 56 working for pay in from the prewar generation and all workers in the same age group in from the early boomers.
In addition to those working for others, we included the self-employed, who make up a significant proportion of the workforce, particularly at older ages. After we dropped 52 observations with missing values, our sample included 3, workers in ; after we dropped such observations, our sample included 2, workers in We used the self-reported probability of working full time past typical retirement ages as our measure of retirement expectations.
We used ordinary least squares to model the subjective probabilities of working full time past ages 62 and We grounded our analysis in a conceptual framework that assumed that rational workers weigh the costs and benefits of continued employment when making retirement decisions. Model regressors that tend to reduce the benefits of working at older ages or raise costs and hence lower the chances of working past normal retirement ages included DB pension coverage, retiree health benefit offers, poor health, household income net of own earnings, and household wealth.
As noted earlier, DB pensions generally penalize work because workers forfeit benefits if they delay retirement past the plan's retirement age. Retiree health benefits reduce retirement costs that stem from the loss of employer health benefits, encouraging people to retire early.
Wealthy workers and those who derive income from sources other than employment face relatively low retirement costs, all else being equal, because they can better maintain preretirement consumption levels than people with fewer financial resources.
Factors in the model that increase work returns or reduce work costs included DC pension coverage, employer-sponsored health insurance coverage, earnings, self-employment, education, and the self-reported probability of surviving to age The cost of working is generally lower for self-employed workers, who typically enjoy more workplace flexibility than wage and salary workers.
Well-educated workers typically face fewer physical job demands and more job flexibility than those with less education. High survival probabilities indicate good health and a relatively long period over which retirement wealth must be spread, increasing the cost of retiring early. The models also controlled for gender, marital status, race and ethnicity, and foreign birth. Although most measures in our model were consistent over time, work limitations and retiree health insurance questions differed in and We measured poor health status by the presence of a health problem that limited work ability.
In , for the first time, the survey did not ask respondents who reported work limitations in the previous interview whether they continued to experience problems. We assumed that work limitations reported in continued into The retiree health insurance question also changed. In and later years, it asked whether respondents could continue their employer insurance coverage up to age 65 if they left the employer at the time of the interview, and whether spouses could be covered.
The wording change could have affected estimated trends. We expressed all financial amounts in constant dollars, adjusted by the change in the consumer price index. Household wealth consisted of financial assets including DC and individual retirement account balances , home equity, and other real assets.
We accounted for differences in family size by dividing married respondents' household wealth and household income net of own earnings by 1. Table 1 reports demographic and economic characteristics for workers aged 51 to 56 in and The comparisons revealed rapid changes in the older workforce over the year period.
Perhaps most striking was the sharp increase in educational attainment. Generational differences also reflected increases in women's labor force participation and declines in marriage.
Although the share of immigrants and Hispanics in the population increased during the s U. Census Bureau, a , b , these trends were not apparent in the older workforce.
Traditional employer-sponsored pension plans and retiree health benefits declined substantially over the period.
The prevalence of work limitations among older workers did not fall over the period. Dropping from the sample respondents interviewed in —whom we assumed had work limitations in if they reported problems in —reduced the share of workers with work limitations to about the same level as in The lack of health improvement over time did not appear to result from the movement of disabled workers into the labor force.
Consistent with the lack of improvement in work limitations, the self-reported probability of surviving to age 75 did not change significantly over time. The persistence of health problems may have been related to rising diabetes and obesity rates among older Americans Centers for Disease Control and Prevention, , The early boomers reported more financial resources than the prewar generation.
Much of these gains, however, were concentrated near the top of the distribution, as median resources increased more slowly. Table 2 shows mean self-reported probabilities of working full time past age 62—the first year people can start receiving Social Security retired worker benefits—for workers aged 51 to 56 in and Except for Hispanics, immigrants, and those who did not complete high school, the probability of working past age 62 increased for all groups we examined, although the differences were not always statistically significant.
Workers facing relatively high retirement costs or high returns to work generally reported higher work expectations. For example, mean work probabilities were especially high among college graduates, workers who expressed confidence in surviving to age 75, workers without access to retiree health benefits, and the self-employed.
Conversely, workers who faced difficult employment conditions, who did not gain much by remaining at work, or who could retire without lowering their living standards were less likely to expect to remain employed at older ages. These workers included those with DB pension coverage, those with work limitations, and those in the top third of the household wealth distribution.
Additionally, men, single adults, and Whites reported higher work expectations than women, married adults, and African Americans.
Table 3 compares mean self-reported probabilities of working full time past age 65 for workers aged 51 to 56 in and Except for foreign-born adults, work expectations increased for all of the groups we examined, and the increases were statistically significant for all groups except Hispanics, those without pension coverage or employer retiree health benefits, and the self-employed.
Table 4 shows coefficients and standard errors from weighted ordinary least squares regressions of the self-reported probability of working full time past age 62 in and The findings generally confirmed our hypothesis that older workers were more likely to remain employed as both the benefits of working and the costs of retiring increased.
For example, workers with DB pension coverage, who typically lose pension wealth if they delay retirement, were about 8 percentage points less likely to expect to remain employed after age 62 than other workers, holding other factors constant. Work expectations in were about 11 percentage points higher for the self-employed, who generally enjoy flexible workplaces, than for wage and salary workers.
Wealth, income, and the availability of employer-sponsored retiree health benefits, all of which make retirement more affordable, lowered work expectations. Earnings and the availability of employer health benefits while working, which raise the gains from work, increased employment expectations at older ages in People with work limitations were significantly less likely to expect to remain employed than people in better health, whereas workers who expected to survive past age 75 were more likely to remain employed than those with lower self-assessed survival probabilities.
Women, married adults, and African Americans were significantly less likely to expect to work past age 62 than men, single adults, and Whites. The results were similar to those reported in Table 4. Table 5 reports results from weighted ordinary least squares regressions of the self-reported probability of working past age 65 in and The estimates were quite similar to those reported in Table 4 for the probability of working past age Self-employment exerted an even larger impact on the expectation of working past age 65 than age 62, increasing the probability by about 13 percentage points.
However, employer health insurance coverage for workers did not significantly increase work expectations after age 65, probably because Medicare benefits begin at Earnings were also insignificant predictors of work expectations past age Lower rates of retiree health insurance offers from employers, higher levels of educational attainment, and lower rates of DB pension coverage accounted for most of the increase between and in self-reported work probabilities after ages 62 and 65 see Table 6.
These trends suggest that the boomers will remain at work longer than the previous generation. The recent uptick in average retirement ages appears to be the leading edge of a new long-term trend. Lengthier careers will likely promote economic growth, increase government revenue, and improve individual financial security at older ages.
Why do boomers plan to work so long? Mermin, Gordon B. A survey of retirement intentions of baby boomers: an overview of health, social and economic determinants. View 1 excerpt, cites background. Older Americans Employment and Retirement. This paper reviews the recent changes in labor force participation and withdrawal in the United States and examines some of possible reasons for the changes.
Nowadays, many older Americans are … Expand. View 3 excerpts, cites background. View 3 excerpts, cites background and results. Various policy developments and long-term economic, social, and demographic trends raise worrisome questions about the financial security of future retirees.
An erosion in employer-sponsored defined … Expand. Work at age expectations and realisations among recent cohorts of Americans. Much remains unknown about how the Great Recession, coupled with the ageing baby-boomer cohort, have shaped retirement expectations and realised retirement timing across diverse groups of older … Expand.
Most research on retirement planning is based on studies of earlier … Expand. Health insurance and retirement behavior: evidence from the health and retirement survey. View 1 excerpt, references background. The choice of a retirement date is one of the most important decisions facing older workers.
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