Work after early retirement: an increasing trend among men

Monthly Labor Review, April, 1995 by Diane E. Herz

Despite essentially flat labor force participation rates for men aged 50 years and older during the past decade, early pensioners returned to work at increasing rates from 1984 to 1993

In the 1980's, labor force participation rates for older men leveled off for the first time on record, suggesting an end to the long-term trend toward earlier retirement. Employers began turning to older workers as a solution to growing labor shortages associated with a long economic expansion and a shrinking pool of young workers. With the onset of a recession in 1990, however, concern about labor shortages quickly disappeared, and older persons were increasingly seen as a prime target for cost cutting through early retirement buy-outs, as well as layoffs. Growing numbers of older workers experienced labor market difficulties such as displacement and unemployment. In addition, other work force changes, including escalating health costs, changes in the nature of private pensions, and the continued shift in the types of jobs in the U.S. economy, affected both older and younger workers.

The leveling off of labor force participation rates since the mid-1980's suggests that retirement ages have stopped falling. However, anecdotal evidence tied to corporate restructuring and downsizing has pointed toward a continued decline in retirement ages, due to voluntary retirement, buy-outs, or withdrawal from the labor force following displacement. Clearly, then, analysts need a method of assessing work and retirement issues that goes beyond that typically used with labor force data or administrative statistics (such as data from the Social Security Administration).

Pension income greatly affects individuals' work and retirement decisions. This is evident from sharp declines in labor force activity that occur at just two ages - 62, when workers can first receive Social Security retirement benefits (the largest source of income for the majority of retirees), and 65, when they are eligible for full benefits. Some withdrawals from the labor force occur earlier, however, often coinciding with receipt of a private pension. Hence, data on receipt of pension income would appear to be a prerequisite for examining new work and retirement trends. But, for any individual, the link between receipt of a pension and retirement (often considered withdrawal from the labor force) is not clear. Many persons continue working or return to work - often full time - after receiving their first pension payment. Conversely, at any given time, some older persons with no apparent pension resources are out of the labor force. Thus, a preferred method of investigating trends in retirement ages and work after retirement is to analyze information on both receipt of a pension and current work activity. Accordingly, for the purpose of the analysis that follows, workers who receive pensions and continue to work are considered working retirees.

Data

Each March, the Current Population Survey (CPS), the monthly survey of 60,000 households from which the Government's official labor force estimates are obtained, includes supplementary questions on sources and amounts of income during the previous calendar year. This information, together with that from the regular monthly questions on work activity, allows the analyst to examine pension receipt and employment in combination. Data from the March 1985, 1989, and 1993 Current Population Surveys are used in the following analysis to examine trends in work and retirement among men aged 50 and older during the past decade.(1) (See box for detailed definitions of pension receipt and work.)

Findings

The major finding of the analysis presented in this article is that both full- and part-time work among retired men (those receiving income from a pension) younger than 65 has increased markedly in recent years. Overall labor force participation rates have not reflected this increase, as other groups - nonpensioners aged 50 years and older and pensioners older than 65 - have continued to reduce their work activity. The article presents various hypotheses that might explain why work activity among early (before age 65) pensioners has increased of late; it then examines data that support or refute each hypothesis. The following discussion does not provide definitive explanations of older men's work and retirement behaviors; however, it points out a trend and provides a first glance at some possible explanations that may stimulate further research.

Table 1 presents data on the employment status of men aged 50 years and older in March of 1984, 1989, and 1993. Each age group is stratified according to receipt of pension income during the previous calendar year and then by employment status during March of the relevant year. The overall proportion of men aged 50 years and older who received a pension increased slightly between 1984 and 1993. Actually, the increase was limited to those between the ages of 62 and 64; it reflected a continuing trend among men toward opting for reduced Social Security benefits, rather than waiting to receive full benefits at age 65.