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Tuesday, January 21, 2014 10:37 PM


Baby Boomers Reluctant to Retire; What About the Fed's Retirement Thesis?


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A new Gallup survey shows Many Baby Boomers Reluctant to Retire.

True to their "live to work" reputation, some baby boomers are digging in their heels at the workplace as they approach the traditional retirement age of 65. While the average age at which U.S. retirees say they retired has risen steadily from 57 to 61 in the past two decades, boomers -- the youngest of whom will turn 50 this year -- will likely extend it even further. Nearly half (49%) of boomers still working say they don't expect to retire until they are 66 or older, including one in 10 who predict they will never retire.



Gallup finds that baby boomers who strongly agree that they currently "have enough money to do everything [they] want to do" expect to retire at age 66. Boomers who strongly disagree with this statement predict they will retire significantly later, at age 73.

Baby Boomers Still a Substantial Part of the Workforce

As the largest generation born in U.S. history, baby boomers' sheer numbers coupled with their reluctance to retire will likely ensure that their influence endures in the workplace in the coming years. Although the first wave of boomers became eligible for early retirement under Social Security about six years ago, the generation still constitutes about one-third (31%) of the workforce, similar to percentages for millennials (33%) and Generation X (32%).



Bottom Line

Whether by choice or necessity, baby boomers will remain a sizable proportion of the workforce in the years ahead, with many expecting to work past the average U.S. retirement age of 61 and even the traditional retirement age of 65. As they continue to age and work, it is important that their organizations build workplaces with outstanding managers who leverage the experiences of older workers by positioning them to do what they do best -- listening to their insights and opinions, and continuing to develop their talents into strengths.

By investing in baby boomers' engagement, employers will reap the benefits that an engaged workforce brings to their bottom line. No matter what their age, engaged workers tend to have higher well-being, better health, and higher productivity than their not-engaged and actively disengaged counterparts. A targeted effort to engage baby boomers could have important ramifications for healthcare costs and productivity for individual workplaces and the overall U.S. economy.
ZeroHedge Cries "BS" On Retirement Thesis

In Spot The Labor Force Collapse Culprit, ZeroHedge produced a chart that allegedly debunks the thesis that the participation rate is declining because of retirement.



On the basis of that and similar charts ZeroHedge concludes

So enough with all this "they are retiring" bull**it, and call it for what it is: millions of Americans of all ages, but mostly of prime working age, bailing out of the labor force by the millions because of equal or better opportunities elsewhere, opportunities which almost without exception are increasingly reliant on the ever more unsustainable and insolvent US welfare state.

Off the Mark

I have no desire to start "blog wars" but ZeroHedge is way off the mark. His chart neither proves nor disproves the retirement thesis. It only shows more people than ever before are working longer.

To properly understand what is happening one must look at the raw numbers as well as the number of people moving from one demographic group to the next.

I did just that on December 17, 2013 in Fed Study Shows Drop in Participation Rate Explained by Retirement; Let's Explore that Idea, in Depth and in Pictures.

Yes people are working longer, but in relation to the number of people moving from one demographic group to the next, huge numbers of retirement-aged people have dropped out of the labor force en masse, as the following charts show.

Change in Labor Force and Population From Previous Year



In the above chart, the change in labor force and the change in population in hard numbers (not percentage terms) are side-by-side.

Consider the numbers for 2012 for age group 65+: The population rose by 2,349,000 but the labor force only rose by 621,000.

What happened to the rest? Retirement?

To make it even easier to see, please consider this final chart, with subtractions made.

Delta of Change in Labor Force to Change in Population



The decline in labor force relative to the growth in population is heavily concentrated in the 65 and older demographic.


As noted previously, the November Fed study on the Causes of Declines in the Labor Force Participation Rate by Shigeru Fujita at the Federal Reserve Bank of Philadelphia concludes "The decline in the participation rate in the last one-and-a-half years (when the unemployment rate declined faster than expected) is entirely due to retirement."

The above charts prove that the analysis by the Fed is indeed reasonable.

People are indeed working longer than ever, but the massive increase in the number of people moving into the 65 and older demographic allows for both a rising participation rate in that class as well as mass retirement.

To be fair, we do not know why some retired. I strongly suspect many did so because their unemployment benefits ran out. To get some money coming in from Social Security, they retired. I call this "forced retirement".

Regardless, it's a huge mistake to fail to go through the proper math, as the above analysis shows.

Finally, none of the above is proof the employment situation is reasonable. It's not. Over the past few years, huge numbers of people have dropped out of the labor force via disability fraud, by staying in school longer than they really want, and by forced retirement. I do agree with ZeroHedge in that the unemployment rate is realistically way higher than reported.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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