CRS Report: Older Workers: Employment and Retirement Trends”

SUMMARY

As the members ofthe “baby boom” generation — people born between 1946 and1964 — approach retirement, the demographic profile of the U.S. workforcewill undergo a substantial shift: a large number of older workers will bejoined by relatively few new entrants to the labor force.  According tothe U.S. Bureau of the Census, while the number of people between the ages of55 and 64 will grow by about 11 million between 2005 and 2025, the number ofpeople who are 25 to 54 years old will grow by only 5 million.  This trendcould affect economic growth because labor force participation begins to fallafter age 55.  In 2004, 91% of men ages 25 to 54 and 75% of women in thisage group participated in the labor  force.  In contrast, just 69% ofmen ages 55 to 64 and 56% of women ages 55 to 64 were either working or lookingfor work in 2004. 

The rate ofemployment among persons age 55 and older is influenced by general economicconditions, eligibility for Social Security benefits, the availability ofhealth insurance, and the prevalence and design of employer-sponsoredpensions.  Labor force participation among people 55 and older may, forexample, be affected both by the trend away from defined-benefit pension plansthat offer a monthly annuity for life to defined contribution plans that typicallypay a lump-sum benefit. The declining percentage of employers that offerretiree health insurance also may result in more people continuing to workuntil they are eligible for Medicare at 65.

RecentCensus Bureau data show that men and women age 62 and older are working moretoday than they were ten years ago.  From 1996 to 2005, the percentage of62- to 64-year-old men who were employed in March of each year rose from 43% to51%.  Throughout the period, about four-fifths of these men workedfull-time.  The percentage of 65- to 69-year-old men who were employedincreased from 27% to 30% during the same period, and the percentage ofemployed 65 to 69 year-old men who worked full-time rose from 57% in 1996 to68% in 2005. Among women 62 to 64 years old, the rate of employment increasedfrom 32% in 1996 to 37% in 2005, and the percentage of 62 to 64 year-oldworking women who were employed full-time increased from 59% to 67%.  Atthe same time, the percentage of 65- to 69-year-old women who were employed rosefrom 17% to 23%, and the percentage of working women in this age category whoworked a full time schedule rose from 40% to 51%.

As moreworkers reach retirement age, employers may try to induce some of these workersto remain on the job, perhaps on a part-time basis.  This is sometimesreferred to as “phased retirement.”  Several approaches tophased retirement — job-sharing, reduced work schedules, and rehiringretired workers on a part-time or temporary basis — can be accommodatedunder current law.  Under current law, however, a pension plan cannot paybenefits unless the recipient has either separated from the employer or hasreached the pension plan’s normal retirement age, which in most plans is65.  Some employers would like to have the option to pay partial pensiondistributions to workers who have reached the pension plan’s earlyretirement age.  This would require a change in federal law.