The Myth of Early Retirement
By Monique Morrissey
Economic Policy Institute
November 9, 2011
http://www.epi.org/publication/myth-early-retirement/

There is a fallacy in circulation that Americans tend to
stop working in their early 60s, shortly after becoming
eligible for reduced Social Security benefits at age 62
and well before the designated "full" retirement age of
66 (Rivlin 2010). As this issue brief shows:

    Labor force participation among older workers is
    high by historical standards. The myth of early
    retirement persists partly because of misleading
    measures of the retirement age which purport to show
    that people retire in their early 60s. A new measure
    of retirement that better captures what we mean by
    retirement (a measure that excludes self-described
    "retirees" still working for pay, people with
    disabilities, and full-time caregivers) shows that
    people in the United States typically retire in
    their mid-60s (age 65.5), not in their early 60s.

Trends in labor force participation

The shift to 401(k)s over the past quarter century, the
gradual phase-in of Social Security benefit cuts enacted
in 1983, and other factors have reversed a post-World
War II trend toward early retirement (Munnell 2011). In
fact, the best available measure of older workers-those
aged 55 to 64-shows historically high labor force
participation: The share of 55- to 64-year-olds in the
labor force is the highest since the Bureau of Labor
Statistics started measuring labor force participation
in 1948. Though the labor force participation rate for
the group of Americans age 65 and older has fallen
somewhat, this broad age group includes a growing share
of people in their 80s and 90s who have very low
participation rates. Overall, the share of Americans age
55 and older who are in the labor force is now the same
as it was a half a century ago and is only slightly
below the postwar peak, as shown in Figure A.

Misleading measures perpetuate myth of early retirement

The age at which workers are eligible for unreduced
Social Security benefits, currently 66, is often
referred to as the "normal retirement age," though the
Social Security Administration uses the term "full
retirement age." The term "normal retirement age" is
potentially confusing because it does not necessarily
correspond to the age when the typical worker retires.
Nevertheless, many experts refer to retirement in one's
early 60s as "early retirement" and view it as a cause
for concern based on the assumption that many workers
are not well informed about how their standard of living
will be affected. It is also popularly believed that
early retirement affects the sustainability of Social
Security even though monthly benefits are adjusted so
that the value of lifetime benefits remains roughly the
same whether a worker retires at age 62 or 70.

Despite evidence to the contrary, the myth that people
are retiring in their early 60s persists in part due to
potentially misleading measures of the "average
retirement age" that include people who are still
working, who were forced to leave the workforce due to
disability, or who were never in the workforce to begin
with.

Existing measures generally fall into three categories:
those based on Social Security take-up; those based on
surveys asking people if they consider themselves
retired; and those based on the labor force
participation rate of older workers. The main problem
with measures based on Social Security take-up or
surveys is that they typically include many "retirees"
who are still working for pay. On the other hand,
measures based on labor force participation lump
retirees in with others who are not in the labor force,
such as disabled people and full-time caregivers.

As shown in Figure B, on average, people start accessing
their Social Security retirement benefits at age 63.8.
This measure declined by more than five years between
1945 and 1970 but has remained relatively stable since
then. It has not increased in recent years, despite the
higher labor force participation of older workers,
because the share of Social Security beneficiaries who
are still working has grown (Social Security
Administration 2002 and 2010a).

This measure includes only people receiving "retired
worker" benefits (as opposed to disabled worker,
spousal, or dependent benefits). A variation that
includes older workers who become eligible for Social
Security disability benefits puts the average
"retirement" age at 62.6 for men and 62.5 for women in
2005-10 (Gendell 2008). The average retirement age
according to this alternative measure has actually
fallen slightly in recent decades because it conflates
two trends-later retirement for healthy workers and
early exit for workers with disabilities. Though the
increase in disability rolls is a valid concern, the two
trends have different policy implications and the
measure does not reflect what most people think of when
they hear the word "retirement."

As mentioned earlier, the main problem with relying on
Social Security take-up is that many Social Security
recipients are still working for pay. Nearly half (45
percent) of recipient "units" (individuals and married
couples) age 62-64 also had earnings from a job or jobs,
and these earnings constituted nearly one-fourth (24.2
percent) of their total income. These are not
necessarily part-time jobs: The typical (median)
beneficiary unit with earned income had earnings of
$28,800 (Social Security Administration 2010a). Though
these statistics include retirees with working spouses
and those who worked part of a year before retiring,
they also include people who are still working full-time
and full-year, especially since Social Security rules
changed to encourage people to keep working.1

This ambiguity also affects statistics based on self-
assessments of retirement status. Numerous surveys
confirm that many self-described "retirees" are still
working for pay. For example, the 2011 Retirement
Confidence Survey conducted by the Employee Benefit
Research Institute found that 30 percent of retirees
reported retiring before age 60, and 38 percent reported
retiring between age 60 and 64. However, nearly one in
four (23 percent) of these self-described retirees were
still working for pay (Helman 2011). Unlike the Social
Security take-up data, this survey measure presumably
does not count people who worked part of a year before
retiring.

A less subjective way to define retirement is based on
labor force participation, excluding anyone who is
working or who is unemployed and seeking work.
Researchers at the Center for Retirement Research (CRR)
at Boston College, for example, define the "average
retirement age" as the age at which labor force
participation drops below half. By this measure, CRR
estimates that the average retirement age is around 64
for men and 62 for women (Munnell 2011).

The problem with this measure is that it pegs the
retirement age too low by counting full-time homemakers,
people with long-term disabilities, and others who are
outside the workforce as retired. For example, for
workers born in 1944 (the cohort that attained Social
Security's normal retirement age of 66 in 2010), the CRR
methodology yields an average retirement age of 62.2 for
men and women combined (Figure C). However, the labor
force participation rate for this cohort peaked at 84.3
percent at age 46. That means that nearly 16 percent of
this cohort was not in the labor force at the time when
their labor force participation was highest. So when
their labor force participation rate dropped below 50
percent, nearly six of 10 people who were working at the
peak were still working. A new measure

A more logical estimate of the average retirement age is
the age at which half of the workforce (as opposed to
half of the civilian population) has left the labor
force. According to Current Population Survey data, the
labor force participation rate falls to half of its peak
at age 64.1.2 But this measure still includes older
workers who left the workforce due to disability. A
better estimate of the average retirement age is the age
at which half of the nondisabled workforce has exited
the labor force: 65.5 (Figure C).3 Note that this still
understates the average age of voluntary retirement
since it includes workers who dropped out of the labor
force after losing their jobs. However, it does count
anyone who works at all (even very part-time) as not
retired.

Policy implications

Americans' supposed proclivity for early retirement is
often cited in policy discussions, including arguments
for cutting Social Security benefits.For example,
Erskine Bowles and Alan Simpson, co-chairs of President
Obama's fiscal commission, cited an average retirement
age of 62 in arguing for an increase in the age at which
people are first eligible for reduced Social Security
retirement benefits (62) and the age at which they can
start receiving full retirement benefits (currently 66,
but increasing to 67 for workers born in 1960 and later)
(National Commission on Fiscal Responsibility and Reform
2010). Maya MacGuineas of the Committee for a
Responsible Federal Budget and others have made similar
arguments (MacGuineas 2009).

There are a couple of problems with the argument for
raising the retirement age to offset alleged early
retirement. First, it implies that the timing of
retirement affects Social Security's finances. It does
not. Contrary to popular belief, the average age of
take-up does not affect Social Security's finances
because benefits are adjusted for early retirement in a
way that equalizes the value of lifetime benefits. In
other words, early retirees receive lower monthly
benefits over a longer period of time.

Second, the suggestion is that workers can offset
benefit cuts by working longer.4 But as we have shown,
people already are working longer-to an average age of
65.5. So when policymakers say that people should be
working longer, they need to be clear about what they
exactly they are saying, which is, "65- and 66-year-olds
need to be working longer," not the less radical-
sounding "62- and 63-year-olds need to be working
longer." In short, focusing on Americans' supposed
proclivity for early retirement makes proposed cuts
appear less harsh, since it is easier to suggest that
workers in their early 60s postpone retirement than to
ask people to work into their late 60s or beyond. And
because many people are unaware that lifetime Social
Security benefits are the same whether a worker retires
at age 62 or 70,5 the idea that Americans tend to retire
early reinforces the myth that Social Security is in
trouble because Americans are living longer but not
working longer.

Clearly, previous measures of the "average retirement
age" do not describe retirement as it is commonly
understood-older workers opting to leave the workforce-
because the measures either include people who are still
working or count full-time caregivers and disabled
people. The fact that the average nondisabled worker is
still working in his or her mid-60s calls into question
the common assumption that workers will be able to
offset proposed Social Security cuts by working longer
into old age.

It could be argued that nonworking spouses and disabled
workers are properly included in these measures because
they are also eligible for Social Security benefits.
While it is true that these groups are also Social
Security beneficiaries, they affect Social Security's
finances in different ways. For example, while the
average retirement age of women has fluctuated over the
years, labor force participation of women in their prime
working years has risen. Social Security's finances have
been more affected by the influx of married women into
the workforce than by changes in the average retirement
age of women, and this effect is unambiguously positive
since benefits for nonworking spouses are not paid for
by higher contributions from married workers.

The higher participation of women has more than offset a
decline in the participation of men. Figure D shows an
overall increase in labor force participation despite
ups and downs in the participation rate for the oldest
workers. This has had a positive impact on Social
Security's finances.

The decline in work among men in their 40s and 50s
raises concerns about a lack of jobs for less-educated
older male workers, but this is a separate issue from
Social Security. A focus on the average retirement age
and labor force participation at the end of people's
working lives often lends support to policies that would
extend working lives into old age, when it might be
wiser to focus on increasing labor force participation
at younger ages. Even though work effort for the
population overall has increased, there is still room
for improvement. For example, disability rates have
increased due to many factors, including the impact of a
weak job market on workers in poor health and the
decline in health insurance coverage. Raising the Social
Security and Medicare eligibility ages would exacerbate
this trend, but expansionary macroeconomic policies and
other job-creation measures would alleviate it. Such
policies would also help middle-aged men without college
degrees, teenagers, and others who are more likely to
drop out of the workforce when jobs are scarce.

The focus on the average retirement age is a distraction
from the more important question of how much Americans
work over the course of their entire working lives. The
broader question of whether Social Security's projected
shortfall is due to a growing imbalance between work and
leisure is addressed at greater length in a longer EPI
briefing paper (Morrissey 2011). However, as long as
people pay attention to these statistics and draw policy
prescriptions from them, they should be as accurate as
possible.

-This paper was prepared with research assistance from
Hilary Wething

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