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Mark Miller: Remaking Retirement

How Have Older Workers Fared in the Pandemic-Induced Downturn?

For some income groups, job loss and early retirement have been higher than in the Great Recession.

The economy seems to be turning the corner as vaccination rates rise. But the impact of the pandemic on older workers has been great.

The rates of job loss and premature retirement for workers in their 60s have been steeper than during the Great Recession a decade ago, according to a recent report by the Center for Retirement Research at Boston College. Using Census Bureau data, the report examines job losses and the extent to which they led to outright retirement among older workers.

The analysis looks at two age groups: workers in their 50s and 60s.

For workers in their 50s, the main impact of the pandemic has been joblessness, not retirement--a result that isn't surprising considering the younger age of this group. The largest impact among this cohort is on low-income workers, but high-income workers have been hit at a rate nearly as high as the Great Recession.

For workers in their 60s, the story has been much different. The hardest-hit group was the lowest-income workers: Twenty-six percent who had been working in 2019 were retired a year later, compared with 25% of the same group in the Great Recession. But the largest shift compared with patterns during the Great Recession was among the highest-earning group: Fifteen percent of the highest-earning workers retired in 2020, compared with just 10 percent during the Great Recession.

"During recessions, there's always a tendency for older workers to retire earlier than they normally would," says Geoffrey Sanzenbacher, a research fellow at the Center for Retirement Research and author of the report. "That tendency wasn't really present during the Great Recession for higher-earning workers, but it certainly has been during the COVID recession."

Both findings--temporary job loss and early retirement--have profound implications for well-being in retirement.

Even a short-term interruption in wages can have a surprisingly large impact on retirement. Each year out of the workforce translates into losses considerably larger than the immediate salary over the arc of a career. The losses compound over time in the form of missed wage growth, retirement savings, and Social Security benefits.

The impact of career interruption is illustrated well by a calculator developed by the Center for American Progress. It allows you to run "what-if" scenarios--and although the calculator's purpose is to demonstrate what happens to career trajectories when work is interrupted because of childcare responsibilities, the point it makes is more universal.

And an earlier-than-expected exit from the workforce can really wreck a retirement plan. It may mean filing early for Social Security, and thereby foregoing delayed retirement credits. It almost certainly will mean more years of living on savings. It also likely will increase health insurance costs--especially in the years prior to Medicare enrollment.

Some of the early retirees aged 62-plus will be buoyed financially by spouses: Thirty-five percent are married to another worker, Sanzenbacher reports. Among the higher-income group of retirees, the figure of married couples is higher--44%. That suggests some of these early retirees will be able to delay filing for Social Security by living on the one income coming into the household, and those who are too young to file for Medicare may be able to gain health insurance through a spouse, too.

Those who don't have a spouse's plan to fall back on will find themselves hunting for insurance in the Affordable Care Act marketplace.

Fortunately, most of the early retirees spotlighted by Sanzenbacher's report are 65 or older and qualify to enroll in Medicare: 90% of the lowest-income group and 77% of the highest-income group.

President Biden has proposed lowering the Medicare eligibility age to 60. That move would seem to have broad public support--in fact, 77% of those asked supported the idea in a 2019 Kaiser Family Foundation poll. But lowering the age for Medicare eligibility doesn't appear to be a front-burner issue for Biden or Congressional Democrats right now.

And some may become re-employed, although they are not likely to return to their previous roles. "Some of them will move into bridge jobs to retirement--maybe not with the same requirement of hours they had, and at lower pay," Sanzenbacher says.

Sanzenbacher's findings serve as a reminder that older workers often have unrealistic expectations about how long they will be able to work. Surveys often reveal that people plan to work well into their 60s or 70s--or not retire at all. This is especially common among people who haven't managed to save much for retirement; working longer is seen as a substitute plan.

In reality, however, half of retirees consistently tell pollsters that they retired earlier than planned. This can happen for a variety of reasons: job loss, a health problem for yourself or a loved one, or just plain burnout. The pull of leisure activities or time spent with family could be factors. So could age discrimination. And that expectation creates risk.

Research by Morningstar in 2018 found that assuming you'll be able to remain employed to an advanced age can work against you if retirement comes sooner than you planned and savings fall short. The report concludes that the more ambitious your plan, the less likely it is to succeed: each planned retirement year results in a half-year difference in actual retirement age. Risk of plan failure actually rises along with your plan's ambition to work longer.

And a separate study by the Center for Retirement Research found that 37% of workers retired earlier than planned, and that the odds of success fell as the goal became more ambitious. In that study, among the 21% of workers who said they intended to work to age 66 or later, 55% failed to work that long.

I like to put it this way: Working longer is a good aspiration, if that's what you want to do, but it's not a plan.

Mark Miller is a journalist and author who writes about trends in retirement and aging. He is a columnist for Reuters and also contributes to The New York Times and WealthManagement.com. He publishes a weekly newsletter on news and trends in the field at RetirementRevised. The views expressed in this column do not necessarily reflect the views of Morningstar.