Declining Social Security Benefits Keeping Older
Men In Workforce, Study Finds
‘Older individuals don’t get the same level of
Social Security benefits when they retire as they once did’
David Blau
May 4, 2010 – A new study confirms the strong trend
– since 1992 – of more senior men delaying their retirement. And, the
researcher finds, the reason older men are remaining in the workforce is
the decline in the generosity of the Social Security benefits.
There was a 4.7 percent increase in the number of
men aged 55 to 69 in the workforce between the periods of 1988-1992 and
2001-2005.
The new 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.
These results give a glimpse of what may happen if
the federal government opts to further decrease benefits to shore up
Social Security’s bottom line, as many experts expect.
“This issue is very important because Social
Security is in financial imbalance, and one way to correct that
imbalance is for people to work longer and delay receiving their
benefits,” Blau said.
“These results suggest that less generous benefits
have the desired effect of inducing people to work longer.”
The researchers use data from a variety of sources,
including the Social Security Administration, the
Current Population Survey and the
Survey of Income and Program Participation. With this data, they
were able to look at labor force participation of men aged 55 to 69
between the years of 1962 and 2005.
One contribution of this study is that it looks at
labor force participation rates for more than 40 years, so that
long-term trends can be identified and explained, according to Blau. In
addition, the study looked at a wide range of factors, in addition to
Social Security benefits, 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 60s to the late 80s. This was
a continuation of a trend that dates back at least to 1900.
This research, like many previous studies, could
not identify the major reasons for this decline, Blau said. Results
suggest that rising generosity of Social Security benefits offered
during this time played a role in men retiring early, but it was not the
main story.
However, experts speculate that a general rise in
living standards and well-being led people to value leisure more and
gave them the opportunity to retire earlier, he said.
While the main reasons for the declining retirement
age from the 60s to the 80s 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 workforce longer – even after changes in
workplace pensions, retiree health benefits and other factors are taken
into account.
Between the periods of 1988-1992 and 2001-2005, the
share of men aged 55 to 69 in the workplace rose from 54.6 percent to
59.2 percent, an increase of 4.7 percentage points.
Results suggest from one-quarter to one-half of
that increase may be explained by declining Social Security benefits,
depending on how the researchers took into account other factors.
“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.”
Two SSA changes are the causes
The study identified two Social Security changes in
particular that 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.
“These two features of Social Security that were
changed in 1983 played a substantial role in persuading men to work
longer,” Blau said.
But while changes in benefits played the largest
role in leading men to delay retirement, the study found these changes
weren’t the only reasons.
In the early 1960s, there weren’t many older
women working outside the home, but that number has increased
substantially over time.
Many more older women in worforce
One important factor identified by the study was
the increasing number of older married women in the workforce. In the
early 1960s, there weren’t many older women working outside the home,
but that number has increased substantially over time.
How does that affect men’s retirement? 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
workforce 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.
He 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 80s and
early 90s, 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 80s, 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.”
