Americans are living longer and healthier lives, but that’s not why they’re working longer into what has been traditionally considered their retirement years.
There are four other factors that contribute to a longer career, according to a research paper by Courtney Coile, an economics professor at Wellesley College in Wellesley, Mass., that was recently distributed by the National Bureau of Economic Research. Labor force participation rates have risen for both men and women (though more so for men) over the past two decades, according to the report.
The reasons why include:
• Education: People who have more education retire later in life, possibly because the work is less physically demanding or because they started their careers late as a result of earning their degrees so they tack on more years to their careers, Coile said.
• Women are more involved in the workforce: Research suggests spouses tend to retire around the same time as one another, which means if women are in the workforce and working longer, their husbands may be as well. Why are women working longer? Some may feel they have to boost their savings, to compensate for time off in the workforce to care for children or other loved ones, while others simply like what they do and aren’t ready to retire.
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• The shift to defined contribution plans, like 401(k) accounts: Americans’ retirement income once came primarily from defined benefit plans, which are pensions, but companies began implementing defined contribution plans like the 401(k) plan in the late 1970s. Unlike pensions, defined contribution plans are mostly funded with employees’ money (for 401(k) plans, it is a percentage of their salary pre-tax), and not every company offers such an account for employees. But there’s another reason the shift may be partially attributed to working longer: pension benefits get better the longer a person works but only until retirement age, then there’s not as strong as a financial incentive, Coile said. On the contrary, there is nothing age-specific about defined contribution plans and they are funded with more money the longer a person works, she said. (Another study found delaying retirement just six months is equivalent to saving an addition 1% over 30 years.)
• Social Security reform: Full retirement age for a person turning 62 in 2018 is 66 and four months, and every year that age increases by two months (so for people born in 1960 and therefore turning 62 in 2022, full retirement age will be 67 years old). For every two-month increase, retirement is pushed off one more month, Coile said. The Social Security Administration has more information on how to calculate your full retirement age.
Of course, health does play a role in working longer (as someone physically incapable of working will have to cut their careers short), but there are even health benefits associated with extending the time a person works. Retirement can have a significant negative impact on the mental health of a retiree, and cause cognitive decline and potentially dementia, a 2010 paper by economists Susann Rohwedder of RAND and Robert Willis of the University of Michigan. Along with keeping the brain active, working longer also boosts social connections and staves off loneliness, which can be more dangerous than obesity. Nearly 43 million adults over age 45 in the U.S. suffer from chronic loneliness.
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There’s one more reason a person may push off retirement: they don’t know what to do when they get there. Americans may have calculated how much money they’ll need to fund their retirement, but may not have formed a plan or mentally prepared for the adjustment. That can be dangerous as going into retirement without a plan can cause pressure on relationships, lead to too many hours spent on the couch doing nothing and potentially mean depression or other sickness. Work may have had meaning to the retiree, and they need a sense of purpose along with some preparation for what to do with their free time.