Report Finds Relationship between Having Pension and Retirement Age

The Center for Retirement Research at Boston College found that the increase of older workers in the workforce is related to reduced availability of pensions and retiree health care, and changes to Social Security.

Since the mid-1990’s, the average retirement age has risen from 62 to 64 for men and from 60 to 62 for women.The report points out that beginning around 1880, the percentage of the older male population at work began to decline sharply. Experts attribute this decline to an unexpected and substantial stream of income that appeared in the form of old-age pensions for Civil War veterans. According to the report, a comprehensive study found that veterans eligible for these pensions had significantly higher retirement rates than the population at large.  

The report notes the next big decline in the work rates of older men occurred after World War II, with the availability of Social Security benefits. The legislation was enacted in 1935; Old Age welfare benefits were paid almost immediately and Social Security retirement benefits began in 1940. The postwar period also saw the expansion of employer pensions, as union power grew and corporations increasingly saw pensions as a crucial component of their personnel systems.   

Finally, the introduction of Medicare in 1965, and the sharp increase in Social Security benefits in 1972, probably led to the final leg of the decline in workforce activity of older men. And, because benefits were available at 62, Social Security may also explain part of the decline in workforce activity for men 55-64.However, the downward trajectory stopped around the mid-1980s, and since then the labor force participation of men both 55-64 and 65 and over has gradually increased. 

The report claims changes to Social Security made work more attractive relative to retirement. The liberalization, and for some the elimination, of the earnings test removed what many saw as an impediment to continued work. The delayed retirement credit, which increases benefits for each year that claiming is delayed between the Full Retirement Age and age 70, has also improved incentives to keep working.   

The shift from defined benefit to 401(k) plans also eliminated built-in incentives to retire. Studies show that workers covered by 401(k) plans retire a year or two later on average than similarly situated workers covered by a defined benefit plan, according to the report.   

In addition, the combination of the decline of employer-provided retiree health insurance with the rapid rise in health care costs gives workers a strong incentive to keep working and maintain their employer’s health coverage until they qualify for Medicare at 65.  

The report also cites higher education levels, improved health and longevity, and less physically demanding jobs as reasons men are working longer.  

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