By now, it has become accepted wisdom that the retirement dreams of older Americans, indeed their very ability to pay current living expenses, really took it on the chin during the recession and the collapses of investment values and the housing market. Certainly, in the case of household assets, the Federal Reserve's authoritative Consumer Finance Survey paints a story of big declines, driven largely by falling home values.
Against this backdrop, reports that more and more seniors are continuing to work seemed to also be a logical response to harder times. Retirement experts generally agree that extending a career is the best shot at an adequate retirement that many seniors have these days. This logic seems to be further confirmed by a recent U.S. Census Bureau report of a strong continuation in 2010 and 2011 of the trend toward extending careers.
Even as the recession's effect wears off and the economy slowly recovers, a rising percentage of seniors is continuing to report to work. More than 16 percent of people age 65 and older were still in the labor force in 2010, up from about 12 percent in 1990. And among those ages 65 to 69, more than 30 percent are still working or seeking work.
A funny thing about accepted wisdom is that it often turns out to either be wrong or nowhere near as clear as we think. In this case, an interesting research paper issued by the Center for Retirement Research at Boston College deserves some airtime. The study was conducted last year by Barry Bosworth, a respected economist at the Brookings Institution, and Kathleen Burke, a Brookings research assistant. In the wake of the Census Bureau reports, the Center last week once again highlighted the study, and it's worth the attention.
Bosworth does (at least) a couple of interesting things here. First, he tries to assemble an inclusive look at where seniors get their income. This is not so easy to do. Even seniors often don't know, for example, how much money they get from their former employers in terms of healthcare and other benefits, not to mention pensions. Government studies often don't cover all sources of income and definitions may differ from study to study.
Trying to make sense of all this, the paper found that over the past 20 years, seniors' reliance on income from Social Security, private pensions, and government-support payments hardly changed. People continued in 2010 to get, on average, about 36 percent of their income from Social Security, 18 percent from private pensions (traditional plans and newer 401(k)s), and 3 percent from transfer payments.
The other two sources of income—earned income from working and income from investments and other assets—were also collectively about the same: 42.5 percent in 2010 versus 42.9 percent in 1990. However, the individual roles of these income sources have made a radical flip during the past 20 years. Earned income jumped from 18.4 percent of total seniors' income in 1990 to 31.2 percent in 2010. Asset income plummeted during this period, from 24.5 percent in 1990 to only 11.3 percent of total senior income in 2010.
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The common wisdom would say that older Americans were forced to earn more wage income because the collapse of investment and housing markets devastated their asset income. But that's not what Bosworth found.
"The fall in asset income can be traced to lower interest rates and a reduced propensity for the aged to convert their wealth to annuities," the paper said. "It does not reflect reduced wealth at older ages ... The aged actually experienced a substantial rise in their own resources, presumably the result of the larger capital gains that have accrued to wealth holders in recent decades."
The decline of traditional, defined-benefit pensions did have a role in causing some older workers to stay on the job. So did the disappearance at many employers of attractive retiree health benefits. Such benefits used to encourage people to retire but when they went away, many seniors decided to keep working for the healthcare help they could get as current employees.
However, the main reason more older people have continued to work, Bosworth concludes, is simply because they like to work and can continue to do so in their later years. In fact, the largest jump in earned income has been concentrated in the top 20 percent of seniors in terms of their overall incomes.
These people also tend to be society's most educated seniors, and it turns out that educated workers are much more likely to keep working than people with less education. "The [labor force] participation rate of college graduates over the age of 55 [is] roughly twice that of those with less than a high school degree," according to the paper.
"Given that the college-educated have the highest income, a much greater probability of having a private pension, and larger Social Security benefits, it seems implausible to associate their pattern of increased work at older ages with economic need," the paper said. "Instead, it is more likely to be reflective of the greater attractiveness of their employment."