Older workers staying in the labor force

Working longer and enjoying it less? That could be the way many of America's senior citizens are feeling these days as they find themselves re-entering the workforce after retiring.

A recent labor market trend is that more and more older people are remaining in the labor force. By the end of 2002, the share of those between the ages of 55 and 64 who were in the labor force-either working or unemployed-rose to 62.9%, its highest level during the post-war era.

Although there has been a steady increase in the share of the near elderly (those between the ages of 55 and 64) in the labor force since 1985, their share has grown rapidly in recent years. From the end of 2000 to the end of 2002, the number of near elderly in the workforce has increased 3.1 percentage points—1.6 percentage points per year. In the previous 15 years, the increase in the number of near elderly in the workforce totaled only 5.5 percentage points, or 0.4 percentage points per year.

The acceleration of the share of the near elderly in the labor force has been attributed to a loss in retirement savings as the stock market crashed in early 2000, decreasing access to health insurance for early retirees, and rising health care costs for the near elderly and the elderly.

More of the near elderly are in the labor force because older workers are staying in the labor force longer instead of retiring, not because people who had already been retired are returning to the labor force. While there has been a clear trend of rising numbers of near elderly in the labor force, there has also has been a gradual trend toward a smaller share of near-elderly reentrants into the labor force (see figure). Thus, the loss of retirement wealth, and more importantly, the loss of access to retiree health insurance, keeps older workers in the labor force longer than before.

What should we be doing about this issue? It is a problem in the way most senior citizens see the situation. Who wants to work up until the day you drop? Well, maybe a small percentage of the population, but the largest percentage want some time off to relax and do other things with their lives. Here are a few thoughts to consider.

1. Educate people about the risks of putting all their eggs in one basket; that is investing everything in fast-growth stocks. Create a balanced portfolio that grows at a reasonable and more predictable rate over time.

2. Invest in more real estate development projects and small growing businesses in your hometown, if these opportunities exist. If not, invest somebody else's hometown. Why not put some of your money in "senior-friendly communities" that offer a positive living environment for senior citizens. This one needs to be thought through some. I'm not convinced that senior retirement meccas in the sun are the answer.

3. Create senior work networks that allow senior citizens to combine their skills to provide services to various industries. A "seniors work cluster" might make some sense.

4. We need to explore some alternative ways to protect retirees' nest egg. This is a matter for the Federal Government to look into. There is relatively little protection as things stand now. Maybe there is a new insurance product that could help. Why not insure your retirement? Is there an insurance company out there willing to do it?

These are some starting thoughts. Oh, one final bit of advice: "Live within your means!" Don't overspend and make too many investments once you hit your mid-50's.

Source: Economic Policy Institute