Between the periods of 1988-1992 and 2001-2005, there was a 4.7 percentage point increase in the number of men aged 55 to 69 in the work force. The study found that between 25 and 50 percent of that increase can be explained by declining Social Security benefits, said David Blau, co-author of the study and professor of economics at Ohio State University.
“Older individuals don’t get the same level of Social Security benefits when they retire as they once did, and that has been one reason why a significant number of men continue to work longer than they otherwise might have,” Blau said.
Blau added that since Social Security “is in financial imbalance,” people are correcting that imbalance by working longer to delay their benefits.
The researchers used data from a variety of sources, including the Social Security Administration, the Current Population Survey and the Survey of Income and Program Participation, and looked at labor force participation rates for men aged 55 to 69 between the years of 1962 and 2005 so that long-term trends can be identified and explained. In addition, researchers examined a wide range of factors that could explain why older men leave or stay in the labor force, such as changes in company pensions, retiree health insurance and the large increase in employment of older women.
The average age of retirement declined during most of the period of the study, from the early 1960s to the late 1980s. While the main reasons for this decline remain unknown, Blau said the results are clear that new Social Security rules put in place in the 1980s have pushed men to stay in the work force longer – even after changes in workplace pensions, retiree health benefits and other factors are taken into account.
“Average retirement ages had been declining in the United States for decades, so a turnaround like we saw beginning in the late 80s is a significant change,” Blau said. “It’s clear that changes in Social Security benefits played a major role in that turnaround.”
The study identified two Social Security changes, which took place in 1983, that especially have led older men to work longer: the increase in the full retirement age beyond age 65, and the financial incentives offered to older workers to delay retirement even beyond the full retirement age.
The study uncovered additional reasons that led to men delaying retirement, as well, such as the increasing number of older married women in the work force. Blau noted that men tend to be a few years older than their wives, and if couples want to retire at the same time, husbands often have to work a few years longer than they otherwise might.
The final important factor in later retirement ages was the increasing education levels of older men. In the early 1960s, the period first covered by this study, the majority of older men in the work force were high school dropouts. But by the 2000s, dropouts were a small minority. Other studies have shown that more highly educated people tend to retire later than those with less education, so it is no surprise that more people are retiring later these days.
Blau noted that the United States is not alone in seeing these changes in retirement patterns. Western European countries and Japan also saw the drop in retirement ages until the late 1980s and early 1990s, and then a steady increase since then.
Nearly all these countries have experienced the same demographic trends and social security trends that encouraged workers to retire earlier, at least up to the late 1980s, according to Blau. Now, a decline in fertility rates in advanced economies has left fewer younger workers to support retirees, and has resulted in reduced benefits in government programs like Social Security and workers staying on the job longer.
The big question is whether the trend toward later retirement will continue, Blau said. The education effects found in this study are unlikely to play a major role in the future, and the effects of older married women in the work force may continue to push men’s retirement back further, but only marginally. The biggest impact will continue to be changes in Social Security benefits, he said.
The full retirement age for Social Security will increase from 66 to 67 for workers born in 1960 and later, so that may induce older workers to remain employed longer. After that, no major changes are in store for Social Security benefits – at least for now.
“Most experts think it is inevitable that there will be further reductions in Social Security benefits to keep the program financially balanced,” Blau said. “Those changes may very well lead to even later retirements.”
Blau conducted the study with Ryan Goodstein of the Federal Deposit Insurance Corp. The study was supported by a grant from the National Institute on Aging and appears in a recent issue of The Journal of Human Resources.