Retiring at 65..or later

Economic and financial loss analysis of front pay earnings and benefits normally require the economist to determine the number of years remaining in the worklife of the plaintiff. Customarily this task is done by considering the facts of the plaintiff's circumstance and review of the appropriate statistical tables of worklike expectancy.

There are a number of methods in use that aid the analyst in determining the worklife expectancy of the individual. These methods and the resulting estimates have been studied and evaluated by economists since the introduction of the worklife estimates by the Bureau of Labor Statistics 1 . While these methods vary based on the mathematical approach and underlying data they all share one common assumption: the worklife of an individual can be determined by a statistical analysis of historical data on similarly situated groups of persons 2 .

In spite of the high quality of the statistical estimates available to economists, a number of economic and social trends suggest that reliance on these methods may need to tempered by consideration of the specific facts of the case. We find that some of these qualitative trends may not have found their way into numbers yet.

These qualitative trends that are impacting the current workers worklife expectations that may not have worked their way into the averages include:

1. Many pre-retirement age workers took early retirement because of the generous severance and pension packages offered by their employers. After ending their first career, many of these workers found premature retirement difficult and began second careers. Diane Herz, a Bureau of Labor Statistics economist, found:

“The major finding of the analysis presented in this article is that both full- and part-time work among retires men (those receiving income from a pension) younger than 65 has increased markedly in recent years.” 3

Often these part-time second careers were tailored to longer worklife than their first career. A Bureau of Labor Statistics (BLS) study observed:

“Those older Americans who stay in the labor force frequently switch to part-time schedules. Among all workers, 17 percent work part-time. Among those aged 60 or older, 36 percent work part-time, as do 52 percent of those aged 65 and older:” 4

2. The American health care system has increased the life expectancy of many individuals. As important, it has also increased the healthy life expectancy. This concept is defined as the years of full functioning of life taking into consideration that toward the end of one's life individuals may be sick or incapacitated.

3. The rules regarding earned income from the Social Security system changed in 2000 to allow many retirees to earn substantial income without beginning penalized with lowered SSI benefits 5 .

4. Many persons who might have retired at customary ages find it financially impossible to do so. Although these people may have planned for a comfortable retirement, they failed to consider the return of their children to live at home or the illness of a parent or spouse that requires considerable resources. The BLS study notes:

“This tendency toward part-time employment may reflect the fact that older Americans –healthier and better able to work than ever before – are attempting to compensate for the erosion of pension benefits over an increasing life expectancy.”6

5.Finally, many well-educated, skilled baby boomers are unwilling to lower their standard of living after retirement. Besi and Kale, in their study of the Wisconsin labor market, found:

“Another factor to consider is that Social Security and pensions replace a smaller portion of income for workers in skilled occupations than for workers in unskilled jobs. As a result, the ‘opportunity cost’ of leaving the labor force rises, on average, with increased years of schooling. In other words, a typical college-educated worker sacrifices more income by retiring than does a worker who failed to finish high school. Higher education thus creates a financial incentive to remain in the labor force, through these higher opportunity costs.” 7

This generation of workers find that their lifestyle requires them to continue to earn an income. A recent BLS study indicated that expenditures by older persons (defined as 65 years and over) are not affected, in most cases, by the age of the consumer but by other demographic and economic factors 8.

1. BLS, "Worklife Estimates: Effects of Race and Education" Bulletin 2254 February 1986.
2. This issue has been extensively discussed in the economic literature. See for example, Richards, H.R. and Abele, J.R. , Life and Worklife Expectancies, 1999 Lawyers & Judges Publishing Co.
3. Herz, D.E., “Working After Early Retirement: an Increasing Trend Among Men”, Monthly Labor Review April 1995, ppg 14. Bureau of Labor Statistics
4.Wiatrowski, WJ., “Factors Affecting Retirement Income” Monthly Labor Review March 1993, ppg 32, Bureau of Labor Statistics.
5. These changes were described in an SSA working paper titled, “The Impact of Repealing the Retirement Earnings Test on Rates of Poverty”, Office of Policy , SSA, February 23, 2000.
6. Wiatrowski, ibid page 32
7.Besi, JR and Kale, BD, “Older Workers in the 21st Century: Active and Educated, A Case Study” Monthly Labor Review, June 1996, ppg 18, Bureau of Labor Statistics.
8. Pallin, G.D., “Expenditure Patterns of Older Workers, 1984 –1997”, Monthly Labor Review, May 2000 ppg 3-28, Bureau of Labor Statistics