Common wisdom has it that older Americans (55 years old and up) are increasingly choosing to stay in the workforce out of financial necessity. Gone are the days when companies offered generous pension plans that allowed for 25-and-out retirement. Long run stagnant wage growth and insufficient financial planning has therefore forced workers to remain on the job. It’s a pretty downbeat story…
The truth is somewhat different, as the following BLS chart of labor force participation (LFP) from 1948 – present for those Americans in the 55 years and over cohort shows:
Here is what we see in the data:
#1. Prior to 1970, LFP for older workers ran at 40% – 43%.
This cohort was predominantly male; LFP participation for men was +80% in the 25 years after World War II, while for women it averaged 35%. In a one-income household it makes sense that workers remained on the job past their 55th birthday.
#2. From 1970 – 1993, LFP dropped in fairly dramatic fashion to just 29%.
As female LFP rose from 33% in 1950 to 60% in the mid 1990s, more households were able to afford leaving the workforce after the age of 55.
#3: From 1993 – 2010, LFP for older workers increased just as noticeably as it had declined in the prior period.
This pickup coincides almost exactly with the topping out of female LFP (60% in 1996, less than 1 point of increase thereafter), and with wages only increasing slowly this reversed the trend of declining +55 year old LFP. Also worth noting: life expectancy increased at a steady pace from 1950 – 2000, so the variations in older worker LFP are unrelated to that phenomenon.
#4: From 2010 – present older worker LFP has been steady at 40%.
This shows that older workers are not increasingly choosing to stay in the workforce during the current cycle; in fact, their LFP has been unchanged for almost a decade. Yes, there was a modest increase through the Great Recession (38% LFP in 2006, 41% in 2012). But older worker LFP has been rock-steady since.
Now, there are several reasons why the 55-and-up group may see higher LFP in the coming decade:
- Health care expenses. Medicare starts at 65, so workers may choose to work at least until that age to retain health insurance.
- Social security benefits are highest for workers who start drawing at age 67, so maintaining an income stream until then maximizes those payments in eventual retirement.
- Most baby boomers do not have a pension to support them in retirement, so continuing to work allows them to forestall drawing on any retirement savings they may have accumulated.
- Important to note: US life expectancy has declined over the last 3 years, but the data clearly shows that income is the biggest driver of longevity. Staying in the workforce and earning a wage literally adds years to a person’s life.
Why all this matters:
First, it tells a much more upbeat economic story than the common wisdom portrays. Older worker LFP is higher than the 1970s – mid 2000s, to be sure. But recent trends show their participation has been stable in the current expansion.
Second, an increase here would be something to welcome. Fed Chair Powell has been focusing on how the central bank can encourage higher LFP across all demographic cohorts. Every Baby Boomer is now at least 55 years old, so this group’s LFP could help lift the national average. And with more workers comes more tax receipts, something the Federal budget could certainly use.
Lastly, the BLS expects +55 year old LFP to rise in the coming decade, a stealth positive for the US economy. The data is in the link below, but the upshot is the Bureau expects rising LFP through 2026 from every age bracket in the +55 age cohort, including +75 years old.
Summary: “OK, Boomer…” has become a popular dismissive meme in the millennial world of social media, meant to brush off this cohort’s opinions, but perhaps “now get back to work” will become that phrase’s coda.