Americans are working longer for financial reasons – they can’t afford to retire. But what few realize are the enormous economic and social benefits that accrue to those workers and the companies they serve.
For more than a century, the U.S. and the world have been steadily aging. It is estimated that between 2015 and 2050, the number of adults over 65 will nearly double as a percentage of the overall population. And the 2017 U.S. Census estimated that more than 10,000 people in the U.S. will turn 65 each day for the next 20 years.
Despite the fact that early retirement and early initiation of Social Security benefits generally result in a failure to maximize those benefits, about 90% of Americans begin collecting Social Security at or before their full retirement age, the most popular age being the earliest eligible (62). The average age to begin receiving benefits is just 64. This choice of collecting benefits early has a dramatic negative impact, reducing monthly benefits by as much as 25% compared to those who wait until age 66 and an additional 32% for those who wait until age 70.
Tim Driver and Amanda Henshon contribute to the literature on retirement planning with their July 2020 study, Working Longer Solves (Almost) Everything: The Correlation Between Employment, Social Engagement and Longevity. They began by noting: “Working longer provides additional lifetime earnings and the opportunity for incremental saving, augments the size of eventual pension and social security benefits and also reduces the number of years of retirement during which these augmented assets will be consumed. Even without considering any health benefit, deferred retirement results in greater resources amassed to support fewer years of retirement.”
Benefits of older workers
Driver and Henshon noted that studies have found that businesses benefit from having older, experienced (work and life), well-trained and productive workers who have important institutional knowledge. Older workers also tend to have lower turnover, reducing the associated costs. And while older workers may have higher healthcare costs, they may choose to switch to Medicare for lower deductibles, copayments and premiums, reducing the costs to the employer. The authors then explain that older workers also benefit from remaining in the workforce.
Benefits to older workers
Older workers benefit from continued participation in the workforce, as work provides a means for them to remain engaged in their communities. In addition to reaping economic benefits from employment, those remaining in the workforce will be, “healthier, less isolated, and happier. Objective social isolation has repeatedly been found to be a risk factor for poor mental and physical health, including higher prevalence of disease and increased risk of mortality.” In addition, they noted: “Work provides opportunities for learning, reasoning, and social engagement, all of which help stave off the adverse effects aging can have on the brain.” They cited a long-term study in England that, “assessed memory in more than 3,000 civil servants over a 30-year period covering the final part of their careers, as well as the early years of their retirement. Results showed that verbal memory, which declines naturally with age, deteriorated 38% faster after retirement.” They noted that other research has suggested that cognitive declines nearly double post-retirement. They also noted that research has found that, “mortality rates decreased among those who worked past age 65.”
Driver and Hensohn went on to note that those who continue to work into their older years had a 25% increase in the size of their social networks, while people who retired saw their social networks shrink. Given that social isolation has been identified as a health determinant equal to smoking 15 cigarettes per day, the reduced social networks resulting from retirement are cause for significant concern. They also cited research that found: “Older adults who have a ‘retirement job’ also often volunteer. It is quite possible then that social interaction can be maintained if older adults choose to volunteer rather than work. Research on the benefits of volunteering by older adults is more extensive and has been going on [far] longer than for older employees. Although not conclusive, there is a correlation between volunteering and improved health outcomes, including larger social networks.” Driver and Henshon added: “In addition to the benefits derived from increased social interactions, for many people, life derives some meaning, purpose, affiliation, and structure from the fact that they are working. Maintaining a satisfying career can help older people sustain their sense of worth and contribute to their happiness.”
Summary
Driver and Hensohn noted that despite the benefits of delaying social security until age 70, most choose to take it early. And despite the financial and psychological benefits of continuing to work past age 65, today only about one in three people aged 65-69 are working, and just one in five aged 70-74.
Working longer addresses the financial pressures on older adults who face the four horsemen of the retirement apocalypse (equity valuations are higher than historical averages and thus future estimated returns are now lower; bond yields are at historic lows; we are living longer; and the likely need for and costs of long-term care are rising) described in my book, Your Complete Guide to a Safe and Secure Retirement, co-authored with Kevin Grogan.
Driver and Hensohn concluded: “There is a strong positive correlation between employment, social engagement, and longevity. Facilitating continued or new employment of older workers not only adds more years to those individuals’ lives, but also adds more ‘life’ to their later years.”
Larry Swedroe is the chief research officer for Buckingham Strategic Wealth and Buckingham Strategic Partners.
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Americans are working longer for financial reasons – they can’t afford to retire. But what few realize are the enormous economic and social benefits that accrue to those workers and the companies they serve.
