Workers are now retiring at older ages because the incentives to retire have changed. Since the mid-1990s, the average retirement age has risen from 62 to 64 for men and from 60 to 62 for women, according to a new Center for Retirement Research at Boston College analysis of Census Bureau data. The trend toward later retirement has been driven by declines in traditional pensions and retiree health benefits offered by employers, changes in the way Social Security benefits are calculated, better education and health, and less strenuous jobs that people are able to perform at older ages.
There was a large decline in the retirement age after World War II, which can be attributed to the availability of Social Security benefits, the expansion of employer-provided traditional pensions, and later the introduction of Medicare. However, the trajectory of earlier retirement ages stopped around the mid-1980s, and since then has gradually increased, Boston College found. In this study the average retirement age is defined as the age at which the labor force participation rate drops below 50 percent. Here’s a look at why the retirement age is now climbing:
Fewer workplace benefits. The shift from traditional pensions to 401(k)s made retirement a more risky prospect because retirees must manage their investments and control spending on their own. The decline of employer-provided retiree health insurance gives employees an additional incentive to keep working until they qualify for Medicare at age 65.
Greater longevity. Individuals are now living longer, which is more years of retirement that need to be financed. Working a few years longer gives workers more time to save and shortens the period of time they need to pay for. Many people in their 60s are also healthy and able to work, especially now that many American jobs are knowledge-based rather than manufacturing positions. People with more education tend to work longer.
Social Security changes. The Social Security formula has been changed to make working longer a better deal. The earnings test, which temporarily withholds Social Security payments for people who earn above certain limits, was removed for workers above full retirement age. For most current workers, the full retirement age is 66 or 67. There is also now a delayed retirement credit, which increases benefits for each year of delayed claiming between the full retirement age and age 70.
[See The New Ideal Retirement Age.]
Working wives. Women have increasingly entered the workforce over the past several decades, which may be driving both men and women to work longer. “Wives on average are three years younger than their husbands, and husbands and wives like to coordinate their retirement,” writes Alicia Munnell, director of the Center for Retirement Research at Boston College, in the report. “If wives wait to retire until age 62 to qualify for Social Security, that pattern would push husbands’ retirement age toward 65.”