Work and Retirement
Friday, November 03, 2006
by Liqun Liu and Andrew J. Rettenmaier
Table of Contents
Labor Market Behavior of Older Americans
The percentage of the population over age 65 in the labor market has generally declined over the past century. According to U.S. Census Bureau data, in 1890, 68 percent of men age 65 and above worked; by 1930 the rate had dropped to 54 percent. The number of elderly Americans working continued to decline after Social Security began providing retirement benefits in 1935 to workers at age 65. Much of the drop occurred during the 1970s and 1980s:
- In 1955, about 40 percent of men 65 and older were working, compared to about 20 percent of men today.1
- By contrast, the portion of older women who work has been relatively constant since the mid-20th century; it was 11 percent in 1955 and is slightly more than 11.5 percent today.
Researchers have identified several reasons for the decline in work among the over-65 population. Some point to fewer job opportunities for older Americans: as real wages fell for older, less-skilled workers, their inclination to keep working declined.2 Others suggest older Americans chose to work less as the real value of pensions and Social Security benefits grew, making the rewards for retirement more lucrative.3
Figure I compares the average Social Security benefit, as a percentage of workers' average wages, to the percentage of individuals age 65 and above who are working. As the figure shows:
- During the 1950s and 1960s, average Social Security benefits hovered around 20 percent of average wages.
- However, from the 1970s to the early 1980s, average benefits rose significantly relative to average wages, reaching 35 percent of the average wage in 1983; subsequently they remained close to that high-water mark, but declined somewhat in recent years.
- The percentage of men age 65 and above who work fell as more of their wages were replaced by Social Security retirement benefits.
"As the value of benefits rises, fewer seniors work."
The rising value of benefits is not the only explanation for the decline in work by older Americans, but it is surely one of the causes.4 Other variables were changing as well. For example, the proportion of retirees who receive Social Security benefits also increased over this time period. In the 1940s, less than 20 percent of individuals 65 and older received Social Security benefits, but by the 1970s almost all seniors received a Social Security check.