Why Retirement Isn't All Play Anymore
Surprise is endemic to economics. Sometimes an unexpected trend or unusual set of numbers turns out to be an aberration. But in other cases, discontinuity signals the transformation of everyday expectations. For instance, the economy is in a slump, employment growth is imperceptible, and the labor-force participation rate among most adults is down -- no surprise there.
However, in a break with the experience of past downturns, the labor-force participation rate of workers 55 and older has jumped by some 2 percentage points since the recession started in March, 2001. According to the Center for Retirement Research at Boston College, this rate declined in previous downturns by a median 0.2%.
What's going on? Simply put, the stock market. It has been well documented that employers retreated in recent decades from offering workers expensive defined-benefit pension plans, in which the business took on the investment risk and committed to a fixed payout of money to its retirees. Instead, companies have increasingly favored lower-cost "defined-contribution" plans, such as 401(k)s, 403(b)s, and IRAs.
CHANGING ATTITUDES. Under these plans, the employee absorbs the responsibility for funding and investing retirement money. Among households with a pension, those relying on a defined-contribution plan rose from 38% in 1992 to 57% in 1998.
The bear market, however, is forcing some to hold off on exiting the workforce and others to find a job. "As workers increasingly rely on 401(k)s for the bulk of their retirement income, their potential vulnerability to a market downturn will continue in the future," say Andrew D. Eschtruth and Jonathan Gemus of the Center for Retirement Research. (Their study is available online at www.bc.edu/centers/crr.)
Older workers, however, may be responding to more than a market downturn. Attitudes toward work, especially among older men, are changing, and this goes beyond the rhythms of the financial markets.
The labor-force participation rate of workers aged 55 to 64 averaged 59% during the latter half of the '90s, according to Sophia Koropeckyi of economic consultants Economy.com. That figure now hovers around 62%, and it could well head higher in coming years. Workers 55 and older accounted for 13% of the labor force in 2000, calculates the Bureau of Labor Statistics. By 2015, older workers will make up an estimated 20% of the workforce as the baby-boom generation ages.
LIVING LONGER. Many boomers say they're preparing to stay engaged in the work world during their golden years. A recent survey of workers 45 and older by the AARP found that 69% plan on working for pleasure and income during retirement, perhaps by laboring part-time, changing careers, or starting a business (see table below).
This transformation in old-age activities is being helped along by longer, healthier lives many are living. Americans are smoking less, exercising more, and are better educated then their parents. The information and service economy allows the elderly to work longer if they want, too. (The AARP study, "Staying Ahead of the Curve," is available at www.aarp.org/research.)
The American concept of old age has changed before. For much of the nation's history, the word retirement suggested ill health, involuntary unemployment, and a humiliating dependence upon family, charity, or community organizations for shelter and food. But Social Security, Medicare, and Medicaid, along with the spread in corporate pension plans post-World War II dramatically transformed living standards among the elderly.
THE RETIRED LIFE. The new retirement system also encouraged aging workers, mainly male, to drop out of the job market. Many companies had a mandatory retirement age, strong work disincentives were built into Social Security, and defined-benefit pension plans penalized workers who stayed on too long.
Retirees developed a distinct lifestyle captured by the mass migration to Sunbelt communities, traveling in RVs and bus tours, spending long mornings on the golf course and other recreational pursuits. The development of retirement was one of the great social achievements of the 20th century, writes Dora L. Costa in The Evolution of Retirement: "For most individuals, retirement is no longer a time of withdrawal from all activities and of dependence on family and friends; rather, it's a time of discovery, personal fulfillment, and relative independence. In the past, such an experience of retirement was limited to the wealthy few that could afford it. Now, it's an option available to the majority of workers."
The workplace is a social institution. Yes, it provides the tangible benefit of an income and, in many cases, retirement and health-care remuneration. But employees seem to increasingly value other intangible benefits: The camaraderie of co-workers, the enjoyment that comes from belonging to a community, a sense of purpose and contribution.
MORE CHOICE? These intangible returns are supported by corporate and government policy changes since the mid-1980s. Among them: Age-discrimination laws banning mandatory retirement rules, amendments to Social Security that have lessened the tax bite on earnings, and defined-contribution plans that don't require workers to draw down their pensions until age 70 1/2.
Right now, the dark side of the switch to defined-contribution plans is painfully obvious. But in coming years, older workers may well have more choice between leisure, family, and work than ever before.
Retirement Plans How workers 45 and older say they'll use their time
Work in some capacity (net) 69% Work part-time for interest or enjoyment's sake 34 Work part-time mainly for the needed income 19 Starting your own business or go into business for yourself 10 Retire from current job or career but work full-time doing something else 28 Not work at all 28 Don't know 2
Data: Staying Ahead of the Curve: The AARP Work and Career Study, a national survey conducted for AARP by RoperASW, September, 200
However, in a break with the experience of past downturns, the labor-force participation rate of workers 55 and older has jumped by some 2 percentage points since the recession started in March, 2001. According to the Center for Retirement Research at Boston College, this rate declined in previous downturns by a median 0.2%.
What's going on? Simply put, the stock market. It has been well documented that employers retreated in recent decades from offering workers expensive defined-benefit pension plans, in which the business took on the investment risk and committed to a fixed payout of money to its retirees. Instead, companies have increasingly favored lower-cost "defined-contribution" plans, such as 401(k)s, 403(b)s, and IRAs.
CHANGING ATTITUDES. Under these plans, the employee absorbs the responsibility for funding and investing retirement money. Among households with a pension, those relying on a defined-contribution plan rose from 38% in 1992 to 57% in 1998.
The bear market, however, is forcing some to hold off on exiting the workforce and others to find a job. "As workers increasingly rely on 401(k)s for the bulk of their retirement income, their potential vulnerability to a market downturn will continue in the future," say Andrew D. Eschtruth and Jonathan Gemus of the Center for Retirement Research. (Their study is available online at www.bc.edu/centers/crr.)
Older workers, however, may be responding to more than a market downturn. Attitudes toward work, especially among older men, are changing, and this goes beyond the rhythms of the financial markets.
The labor-force participation rate of workers aged 55 to 64 averaged 59% during the latter half of the '90s, according to Sophia Koropeckyi of economic consultants Economy.com. That figure now hovers around 62%, and it could well head higher in coming years. Workers 55 and older accounted for 13% of the labor force in 2000, calculates the Bureau of Labor Statistics. By 2015, older workers will make up an estimated 20% of the workforce as the baby-boom generation ages.
LIVING LONGER. Many boomers say they're preparing to stay engaged in the work world during their golden years. A recent survey of workers 45 and older by the AARP found that 69% plan on working for pleasure and income during retirement, perhaps by laboring part-time, changing careers, or starting a business (see table below).
This transformation in old-age activities is being helped along by longer, healthier lives many are living. Americans are smoking less, exercising more, and are better educated then their parents. The information and service economy allows the elderly to work longer if they want, too. (The AARP study, "Staying Ahead of the Curve," is available at www.aarp.org/research.)
The American concept of old age has changed before. For much of the nation's history, the word retirement suggested ill health, involuntary unemployment, and a humiliating dependence upon family, charity, or community organizations for shelter and food. But Social Security, Medicare, and Medicaid, along with the spread in corporate pension plans post-World War II dramatically transformed living standards among the elderly.
THE RETIRED LIFE. The new retirement system also encouraged aging workers, mainly male, to drop out of the job market. Many companies had a mandatory retirement age, strong work disincentives were built into Social Security, and defined-benefit pension plans penalized workers who stayed on too long.
Retirees developed a distinct lifestyle captured by the mass migration to Sunbelt communities, traveling in RVs and bus tours, spending long mornings on the golf course and other recreational pursuits. The development of retirement was one of the great social achievements of the 20th century, writes Dora L. Costa in The Evolution of Retirement: "For most individuals, retirement is no longer a time of withdrawal from all activities and of dependence on family and friends; rather, it's a time of discovery, personal fulfillment, and relative independence. In the past, such an experience of retirement was limited to the wealthy few that could afford it. Now, it's an option available to the majority of workers."
The workplace is a social institution. Yes, it provides the tangible benefit of an income and, in many cases, retirement and health-care remuneration. But employees seem to increasingly value other intangible benefits: The camaraderie of co-workers, the enjoyment that comes from belonging to a community, a sense of purpose and contribution.
MORE CHOICE? These intangible returns are supported by corporate and government policy changes since the mid-1980s. Among them: Age-discrimination laws banning mandatory retirement rules, amendments to Social Security that have lessened the tax bite on earnings, and defined-contribution plans that don't require workers to draw down their pensions until age 70 1/2.
Right now, the dark side of the switch to defined-contribution plans is painfully obvious. But in coming years, older workers may well have more choice between leisure, family, and work than ever before.
Retirement Plans How workers 45 and older say they'll use their time
Work in some capacity (net) 69% Work part-time for interest or enjoyment's sake 34 Work part-time mainly for the needed income 19 Starting your own business or go into business for yourself 10 Retire from current job or career but work full-time doing something else 28 Not work at all 28 Don't know 2
Data: Staying Ahead of the Curve: The AARP Work and Career Study, a national survey conducted for AARP by RoperASW, September, 200
