By: Liz Strait, PhD
Introduction
The recent phenomenon of the "Great Retirement" in the United States, significantly influenced by the COVID-19 pandemic, presents a notable shift in the labor market, especially among Americans over the age of 65. This impacts both retirees and non-retirees—resulting in widespread implications for the entire economy.
The pandemic is directly responsible for an unexpected increase in the number of retirees. As of September, there are approximately 2 million more retirees than were predicted pre-pandemic.i This is primarily due to:
- Many older workers chose retirement to avoid the health risks associated with continued employment.
- The economic downturn catalyzed by the pandemic led many companies to offer early retirement packages as a cost-cutting measure.
- While there was an economic downturn, the pandemic also led to a surge in asset values (e.g., real estate and stocks), providing a financial buffer for many nearing or at retirement age—making retirement more feasible for some in this population.
- Remote work wasn’t possible for all workers, including older workers in certain industries. For some, this led to a preference for retirement over adapting to new work models.
As a result of these trends, we are seeing lower labor market participation rates, challenges in reentering the workforce, and shifts in retirement patterns for older Americans:
- The labor market participation rate for workers aged 65 and older was approximately 21% before the pandemic. It has since dropped to 19%.
- Many older Americans are finding it increasingly difficult to rejoin the workforce due to skill atrophy, weakened work connections, and ageism. The average time to find employment for people aged 65 and older was approximately 32 weeks in 2022ii, which is significantly longer than the overall average (approximately 20 weeksiii).
- Un-retiring has become less common than it was before the pandemic.
Client Impact
Ultimately, the long-term implications for those aged 65 and older, a group that was disproportionately affected by the pandemic, are unclear. This leads to greater uncertainty among these individuals, especially when it comes to the ability to participate in the labor market. These changes also reflect a deeper reassessment of work-life balance and retirement decisions among Baby Boomers.
Of course, the effects of the Great Retirement are not limited to Baby Boomers. The increased number of retirees and the decreased rate of labor market participation by those aged 65 and older has implications for non-retirees and the broader economy:
- Labor shortages: certain sectors may experience labor shortages, which can lead to increased demand for younger workers, possibly improving job opportunities and wages.
- Increased workload: non-retirees might face increased workloads and responsibilities to compensate for the reduced workforce. This could lead to higher stress and burnout.
- Shift in skills: as older workers retire, there will be a loss of experienced, skilled labor. As a result, companies may need to invest more in training and development for existing employees to fill this gap.
- Intergenerational wealth transfer: the retirement of a large segment of the population could accelerate the transfer of wealth to younger generations—potentially impacting investment patterns and consumer spending.
- Economic growth: a smaller workforce can affect overall economic productivity, however, if retirees are financially secure, their spending can continue to contribute positively to the economy.
- Social Security and pension systems: more retirees and lower workforce participation will put increased strain on Social Security systems and pension funds, potentially leading to reforms or changes in retirement benefits.
- Healthcare and social services: an aging population may demand more healthcare and social services, which will impact public spending and require more workers in these sectors.
Overall, the Great Retirement has and will continue to have significant impacts, both positive and negative, on the U.S. economy and population.
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End Notes
[i] Alex Tanzi. “Millions of Retired Americans Aren’t Coming Back to Work as Predicted.” Wealth Management, 8 Nov 2023, https://www.wealthmanagement.com/retirement-planning/millions-retired-americans-arent-coming-back-work-predicted.
[iii] https://finance.yahoo.com/news/long-takes-job-2023-5-150044363.html
[iv] Frederick, S., & Loewenstein, G. (1999). 16 Hedonic adaptation. Well-Being. The foundations of Hedonic Psychology, edited by D. Kahneman, E. Diener, 302-329.
[v] Kahneman, D., Krueger, A. B., Schkade, D. A., Schwarz, N., & Stone, A. A. (2004). The day reconstruction method (DRM). Instrument documentation.