Squared Away Blog

January 24, 2013

Boomers Delay Retirement, Earn More

Reflecting the sea change in lifestyles for the over-65 set, the share of their total income that America’s elderly earn from working has almost doubled over the past two decades.

That’s a central conclusion of research by the Brooking Institution’s Barry Bosworth and Kathleen Burke, who compared the 1990 and 2010 sources of income for the nation’s age 65-plus population in a paper funded by the Retirement Research Consortium, which supports this blog.

Some things haven’t changed.  The share of the elderly’s income that comes from Social Security, employer pensions and – for the poor – government aid such as welfare has hardly budged over the past two decades.

But the earnings the elderly derive from employment soared from 18 percent of their total income in 1990 to 31 percent currently.  The primary reason is that more Americans are working longer and delaying retirement, a multifaceted response to better health, more education and – at least for some – growing financial insecurity.

Consider the 89-year-old worker for the Massachusetts Department of Transportation who is that state’s oldest employee – and loves it. “Epstein enjoys his job so much that his co-workers sometimes catch him humming,” a Boston Globe article said.  At a manufacturing company in suburban Boston, the median age of workers at Vita Needle is 74; some of these workers will discuss employment at their age in a video in next Tuesday’s blog post. These may be extreme cases, but the average U.S. retirement age is ticking up.

In a December interview, Bosworth also said his research findings are “very consistent with the notion that if you like your job, you stay. If you don’t like your job, you get out.”   In particular, he said that people with the highest incomes and the most education “like what they’re doing.”

Among the over-65 set, labor force participation – and earnings from working – are rising for both men and women, but their patterns are different.  For men, earnings were declining prior to the 1990s but the reversal has been dramatic as more men delay retirement.  But for women who joined the post-war stampede into the workforce, “it’s been constantly going up but it appears to have accelerated.”

The sharp decline in income from investments – from one-quarter to just over one-tenth of the elderly’s total income – is more difficult to explain.  One clear reason is the plunge in interest income on their investments.  In the early 1990s, for example, yields on bank certificates of deposit popular with the elderly were in the teens – they’re bumping around 1 percent today.

Another reason is U.S. employers’ transition from a defined-benefit to a defined-contribution pension system.  When today’s elderly draw on the financial assets they’ve saved over their lifetimes in 401(k)s and IRAs, these sporadic lump-sum withdrawals don’t register as income in surveys that record only regular payments, such as the U.S. Census on which the above chart is based.

To read an executive summary of these findings, click here.

Full disclosure:  The research cited in this post was funded by a grant from the U.S. Social Security Administration (SSA) through the Retirement Research Consortium, which also funds this blog.  The opinions and conclusions expressed are solely those of the blog’s author and do not represent the opinions or policy of SSA or any agency of the federal government.