Almost 20% of Americans 65 and older are still working, according to the latest data from the US Bureau of Labor Statistics (BLS). That’s the highest percentage of 65+ people still working since the early 1960s, before the US enacted Medicare.
Because of the huge Baby Boom generation that is just now hitting retirement age, the U.S. has the largest number of older workers ever. The BLS says there are now more than nine million Americans over 65 who are still in the workforce.
Americans Are Working Longer
Why are more people than ever putting off retirement? The answer: THEY NEED THE MONEY.
Three in five retirees (60%) surveyed by the Transamerica Center for Retirement Studies said making money and/or earning benefits (including health insurance) was the main reason they had to keep working beyond age 65.
The financial crisis (late 2007/early 2009) and the tech bust (late 2000/2001) devastated many Baby Boomers’ retirement savings. That’s if they had any to begin with. Today, 60% of US households have no money in a 401(k) or similar retirement account. I’ve been writing about this problem for years.
Some 36% of those working beyond age 65 told Transamerica they are working longer because they enjoy their jobs and want to stay involved. With Americans living longer and healthier, it is not unusual that many want to keep working longer. That’s interesting, but most have no choice.
Education also comes into play when it comes to working later in life. People with college and graduate degrees tend to work to older ages than those with less schooling, according to a 2013 study by the Center for Retirement Research at Boston College. And since 1985 the share of older Americans with college degrees has tripled, to about a third of 60-74 year-olds.
Another factor is that a growing number of employers actually want their best employees to stick around longer. With the U.S. unemployment rate at 5%, the lowest since early 2008, employers have a greater incentive to encourage older employees to work beyond age 65. They might not be able to replace them.
With more education, these skilled, experienced workers have become more valuable to employers. In 1985, workers tended to earn the highest salaries of their careers in their 40s, the Center for Retirement Research study found. Yet by 2010, those peak earning years had shifted to the 50s. All age groups older than 50 earned more than they did 25 years earlier; with those in their 60s making 30% more. Interestingly, by 2010 workers under 50 actually earned less than they used to.
Next, there are numerous studies which conclude that working longer actually improves the health of many older people, which makes sense to me. There are some studies that disagree but a lot depends on how your health is by age 65, which varies widely of course.
Here’s another interesting twist on retirement. A recent study by the Employee Benefit Research Institute found that many retired Americans are not enjoying their golden years as much as they expected. This study found that less than 50% of retirees said they were “very satisfied” in retirement in 2012 versus over 60% in 1998. Again, think money.
In conclusion, more Americans are working beyond age 65 for two primary reasons (in order): 1) They haven’t saved nearly enough to retire in the lifestyle they are accustomed; and 2) They are healthier and living longer and don’t want to retire at age 65.
Finally, there are important reasons to delay retirement until age 70, if possible, to maximize Social Security benefits, but space does not permit me to get into that detailed discussion today.
Another Big Reason Americans Are Working Past Age 65
More and more American employers are reducing or eliminating healthcare benefits for their retired employees. According to a recent Kaiser Family Foundation report, retiree health coverage is becoming an endangered species.
As recently as 1988, two-thirds (66%) of companies that employed 200 workers or more and offered healthcare coverage for active workers also offered retiree health plans that their former employees could access. Yet that number plummeted to only 23% in 2015.
Large Firms Offering Retiree Health Benefits
Employer-sponsored retiree health coverage once played a key role in supplementing Medicare. Yet this type of coverage has been eroding for decades, as seen in the chart above. The decline, which has been steady and almost unbroken, reflects the rising cost of healthcare and employers’ diminishing sense of responsibility for long-term workers in retirement.
The implications of this trend hit today’s retirees, who typically are eligible for Medicare upon turning 65, very hard. The Kaiser Family Foundation (KFF) report states: “The drop in retiree health coverage has important implications for retiring boomers who are approaching their Medicare years with a different set of insurance needs and choices than their parents’ generation.”
Financial protection against unexpected healthcare costs is crucial for most Medicare enrollees, especially middle and low-income members, because the gaps in Medicare can be onerous. The deductible for Medicare Part A, which covers inpatient services, is $1,288 this year, plus a co-pay of $322 per hospital day after 60 days. Part B, which covers outpatient care, has a modest annual deductible of $166 but pays only 80% of approved rates for most services.
As a result, many retirees are choosing to purchase so-called “Medigap” policies which fill in the gaps caused by Medicare’s deductibles, cost-sharing rates and benefit limitations. The proliferation of these types of policies has the potential to drive up healthcare costs since people who have this coverage tend to seek considerably more healthcare on average than those who don’t.
This trend is likely to fuel interest in Congress to legislate limits on what Medigap plans can cover. As a result of these likely limits, more Medicare enrollees may opt for so-called “Medicare Advantage” plans that resemble HMOs in offering narrower provider networks, but with annual caps on out-of-pocket spending. Yet Medicare Advantage plans are also more expensive for the government.
While this brief discussion of shrinking retiree health coverage is far from comprehensive, the trend is clear. It does underscore why more and more Americans are choosing to work beyond the age of 65. Many retirees cannot afford the health coverage they need. Many working beyond 65 are doing so to keep the health plan their employer provides, or to make the money it requires to purchase one of the supplemental plans discussed above.
Gary D. Halbert is the president and chairman of Halbert Wealth Management, Inc. His Forecasts & Trends Weekly E-Letter may be obtained free of charge by subscribing at www.halbertwealth.com