A new study by the RAND Corp. found that the number older Americans who delay retirement will grow over the next two decades, which could ease the financial strains on Social Security and Medicare.
The study contradicts government projections, which estimate that the number of older Americans working longer — a trend that started in the late 1990s — will plateau over the coming decade. But RAND cites several factors that lead it to a different conclusion. Among these are longer life expectancy, less disability, jobs that don’t require physical exertion and the rise in the number of dual-earner families—couples tend to retire together and men (who are often older) will delay retirement to wait for their wives.
“The projections from the [Labor Department] didn’t take these forces into account,” said Julie Zissimopoulos, an economist for the RAND Corporation. “The assumptions are that labor participation will flatten, but that didn’t sit with us.”
According to RAND’s research, the number of older American men and women in the workforce began to rise modestly during the 1990s. Roughly 17% of people aged 65 to 75 were employed in 1990; that number is expected to rise to 25% in 2010.
Zissimopoulos said that too many workers still begin claiming their Social Security benefits at 62, which reduces benefits by about 25%. Employers and advisors would be wise to educate workers about the advantage of delaying their claims. Changes that will delay full Social Security benefits from age 65 to 67 will not be fully in force until 2022. But the way in which we view the common retirement age might be already changing.
“Social norms are changing the normal retirement age,” Zissimopoulos said. “Sixty-five is no longer normal so that shift up could continue changing the engrained retirement age. And 62 sounds really young now.”
RAND is calling on lawmakers to consider changes that would encourage employers to hire older workers, and the think about reforms that would remove barriers that discourage older people from remaining employed. This includes the elimination of measure in some pension plans that penalize recipients who work longer.
Social Security, which is expected to be solvent until 2037, will obviously be helped by older Americans delaying retirement. The longer they work, the more they pay into the system. Zissimopoulos believes that Medicare will also benefit to some degree, but not nearly as much.
“The problems for Medicare are much bigger,” she said.