Why Are Boomers Working Longer?

Dec 14, 2018 / Amanda Chase, Horsesmouth Assistant Editor

Even when their wealth would allow them to retire comfortably, many clients postpone leaving the working world. Recent academic studies observed the increased workforce participation of the retirement-aged population in the United States over the past three decades, trying to figure out why so many people want to keep working beyond the age of 65.

“Employment rates of older men and women in the U.S. have been rising for the past several decades. Over the same period, there have been significant changes in Social Security and private pensions, which may have contributed to this trend,” writes Courtney Coile, an economics professor at Wellesley University and co-director of the National Bureau of Economic Research’s International Social Security project, in “The Evolution of Retirement Incentives in the U.S.” Her calculations show that about 38% of men between the ages of 65 and 69 years were working in 2016 (the year for which the most recent data is available). That compares to only 28% of men the same age group working in 1980, prior to the 1983 changes to Social Security rules which allowed for an increase in delayed retirement credits.

In her paper, Coile measures what she calls the implicit tax rate on work—a calculation based on the net present discounted value of Social Security wealth associated with working an additional year, relative to earnings. She finds “the implicit tax on work after age 65 has dropped by about 15% for a typical worker as a result of Social Security reforms” in the 1980s. If that’s paired with the changes in private pensions since then—a dramatic shift away from defined benefit plans to defined contribution plans—the implicit tax has dropped even more, by about 20%, she writes. That drop explains some of the reason retirement-aged folks remain in the workforce, Coile concludes.

You can find the full article and further studies at Financial Advisor IQ.


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