Behavior

December 6, 2022

The economy expanded smartly in the years before the Great Recession, just as it did before the COVID downturn. But the two recessions were markedly different, with opposite effects on when older workers signed up for Social Security, a new study finds.

In 2008, the stock market slid nearly 40 percent. Older Americans with retirement accounts, wanting to recoup their losses, were more likely to keep working or looking for a new job during the protracted downturn. But skyrocketing unemployment pushed many older workers in the other direction.

Social Security became an obvious fallback in the Great Recession for jobless workers who were at least 62 years old as the unemployment rate stagnated at around 10 percent for 1½ years. Not surprisingly, then, more people overall started claiming the retirement benefit early.

The COVID recession had the opposite effect on Social Security claiming. There was a slight decline in the likelihood that older workers started their benefits early – defined as prior to Social Security’s full retirement age – according to the Center for Retirement Research.

COVID played out differently mainly because the generosity of the federal pandemic assistance was unprecedented. First, in March 2020, Congress approved $600 weekly payments to supplement the standard unemployment benefit and extended them for 13 weeks. In December 2020, Congress renewed the weekly supplement at $300 and extended the benefits for 11 weeks. In March 2021, they were extended again through the end of September.

During COVID, the slight drop in claiming Social Security early was driven by older workers whose earnings are in the bottom two-thirds of all workers’ earnings. The unemployment support from the federal government made it easier for them to stay afloat without having to sign up for the retirement benefit.

The stock market also behaved much differently in the pandemic than in the 2008 financial crisis. During COVID, the market snapped back within months of its steep drop. The Standard & Poor’s 500 index rose 18 percent in 2020 and soared another 28 percent in 2021. House prices also surged.

People with assets responded to their newfound wealth, becoming more likely to sign up for their Social Security benefits early relative to those without assets, the researchers found.

Still, this impact was more than offset by the decline in early claiming overall because more older Americans were using their generous unemployment benefits to keep paying the bills. …Learn More

Behavior

September 15, 2022

Retirees who postpone collecting Social Security from age 62 to 66 – the full retirement age for most baby boomers – get around a third more in their monthly checks. Delaying to 70 increases it even more.

There’s one problem with this strategy. Many people want to retire well before they turn 66.

But there is an alternative for people with 401(k) savings: retire but don’t sign up for Social Security and withdraw an amount from the 401(k) equivalent to the Social Security check. Then delay Social Security for a few years. The start date will, of course, depend on how much money is in savings and how much of it the retiree can spend comfortably.

In a recent experiment, this idea appealed to a substantial minority of older workers who were made aware they could create this so-called “bridge” to a larger Social Security check.

The researchers randomly assigned the workers – all between 50 and 65 – to one of four groups. Each group was presented with the same choice of whether to use the bridge strategy but the choice was described differently. Regardless of the description, the share of participants willing to consider the strategy fell within a range of 27 percent to 35 percent.

This level of interest is “noteworthy,” given that “the survey is likely the first time the respondents would have encountered the idea of drawing down their 401(k)s to postpone claiming Social Security,” said the researchers at the Center for Retirement Research. …Learn More

December 21, 2021

Three months into the pandemic, a few million older workers had been laid off or quit. But what happened next?

The rapid drop in employment due to COVID gave the Center for Retirement Research an unusual opportunity to study the labor force decisions of baby boomers, who are within striking distance of retirement age but may or may not be ready to take the leap.

Traditionally, older workers who left a job tended to retire. But there was little indication that the people who stopped working during the pandemic saw retirement as their best fallback option.

This conclusion by the researchers is consistent with the pre-COVID trend of boomers working longer to put themselves in a better financial position when they eventually do retire. In fact, many older workers have returned to the labor force as the economy has rebounded and vaccines have become widely available.

But in April 2020, job departures spiked before settling back down at a new, much higher level. The annual pace of departures increased from 15 percent of workers 55 and over in 2019, prior to COVID, to 23 percent in 2020.

The researchers found a surprise when they looked at who stopped working. Although older people are vulnerable to becoming seriously ill from COVID, age wasn’t a big factor in their decisions. Boomers in their 60s were no more likely to leave their jobs than people in their mid- to late-50s, according to the analysis of monthly Census Bureau surveys.

The groups most likely to leave the labor force were women, Asian-Americans, and workers who either don’t have a college degree or don’t have a job that easily lends itself to working remotely.

But among all of the age 55-plus workers in the study, the share reporting that they had retired barely increased, from an average of 12 percent prior to COVID to 13 percent last year.

The only people who left their jobs and retired in significant numbers during the pandemic were over 70. This finding reinforced what the researchers found in data from the U.S. Social Security Administration: the pandemic didn’t have a major impact on retirement because the share of workers between 62 and 70 who signed up for Social Security was relatively flat between April 2019 and June 2021. …Learn More

Behavior

October 12, 2021

In 1983, Congress introduced gradual increases in the eligibility age for full Social Security benefits from 65 to 67. The increases, starting in 2000 and continuing today, have meant larger reductions in the monthly checks for people who sign up for their benefits early.

This was a major cut to Social Security benefits, and it has had an impact. Retirement rates have declined among workers in their early 60s as they delayed retirement to make up for the larger penalties for claiming their benefits early, a new study found.

Estimating the effect of this change on retirements is challenging, so the researchers compared actual retirement rates after the reform with their estimates of what the rates would’ve been if Congress had not increased the full retirement age. They also calculated the retirement rates a few different ways. Their main estimate, based on three decades of U.S. Census data, was notable, because it showed a substantial decline in retirements at age 62, which is the first time workers can collect Social Security – and the age that exacts the biggest penalty in the form of a smaller monthly check.

At ages 63 to 65, the penalties for claiming early shrink – and the effect of the reform was less noticeable.

But the main estimate of retirement rates – the incidence rate – showed that the 1983 increase in retirement penalties had a significant impact on 62-year-olds. The incidence rate is the number of people in a given year who retire at 62 as a percentage of everyone in their birth cohort.

The results showed that 10 percent of the men – all workers born after 1937 – left the labor force when they were 62. That’s about 5 percentage points less than the rate would’ve been without the reform.

For women, the incidence rate at 62 was 8.4 percent, which is about 2 points less than if there had been no reform. Their response may have been more muted because women retire for different reasons than men. …Learn More