To What Extent is Gradual Retirement a Product of Financial Necessity To What Extent is Gradual Retirement a Product of Financial Necessity? Kevin E. Cahill, PhD The Center on Aging & Work at Boston College Michael D. Giandrea, PhD U.S. Bureau of Labor Statistics Joseph F. Quinn, PhD Boston College, Department of Economics November 21, 2015 Gerontological Society of America’s 68th Annual Scientific Meeting Orlando, Florida This work was supported by the Lifelong Health and Wellbeing Cross-Council Programme. The LLHW Funding Partners for this award are the Economic and Social Research Council and the Medical Research Council [grant number ES/L002884/1]. We would also like to acknowledge and thank the research participants who kindly gave their time and shared their experiences, thoughts, and expectations about work and retirement.

Agenda Overview Background Data and Methods Key Findings Discussion Conclusions

Overview Research Objective: This paper explores the extent to which the increased financial insecurity of older Americans may lead to a higher prevalence of gradual retirements. Motivation: The many pathways to retirement are undoubtedly the product of a flexible labor market and may be good news on balance; however, for some these job changes may reflect hardship. A key question for policymakers is to what extent the new world of financial insecurity will impact not only the decision to work later in life but also patterns of labor force withdrawal. Key Findings: Gradual retirements are common across all wealth categories. The types of bridge jobs taken vary by wealth level. Those with lower levels of wealth are more likely than others to be working in wage-and-salary, full-time bridge employment.

The Evolving Retirement Income Landscape in the United States Changes have occurred to each of the three pillars of retirement income in ways that favor work over leisure. Further, we have entered a new world of retirement income security in America, with older individuals more exposed to market risk and more vulnerable to financial insecurity than prior generations. Retirement income security now often requires earnings from continued work later in life. Fortunately, older Americans have responded to this new reality and are now working at rates not seen since the mid- 1970s. Source: Cahill, Kevin E., Michael D. Giandrea, and Joseph F. Quinn. 2015. Evolving patterns of work and retirement. In L. George & K. Ferraro (Eds.), Handbook of Aging and the Social Sciences (8th Edition). New York, NY: Elsevier.

Early Retirement: ~100 Year Trend Average retirement age of men in the US, 1910 to 1985 Source: Quinn, Joseph F., Kevin E. Cahill, and Michael D. Giandrea. 2011. “Early Retirement: The Dawn of a New Era?” TIAA-CREF Institute Policy Brief (July).

The End and Reversal of the Trend Average retirement age of men in the US, 1973 to 2014 Source: Quinn, Joseph F., Kevin E. Cahill, and Michael D. Giandrea. 2011. “Early Retirement: The Dawn of a New Era?” TIAA-CREF Institute Policy Brief (July); updated with BLS Employment and Earnings.

The Break in LFPRs: Older Men Labor force participation rates, actual and fitted values, males aged 60 to 64, 1964 to 2014 Source: Quinn, Joseph F., Kevin E. Cahill, and Michael D. Giandrea. 2011. “Early Retirement: The Dawn of a New Era?” TIAA-CREF Institute Policy Brief (July); updated with BLS Employment and Earnings.

The Break in LFPRs: Older Women Labor force participation rates, actual and fitted values, females aged 60 to 64, 1964 to 2014 Source: Quinn, Joseph F., Kevin E. Cahill, and Michael D. Giandrea. 2011. “Early Retirement: The Dawn of a New Era?” TIAA-CREF Institute Policy Brief (July); updated with BLS Employment and Earnings.

Retirement as a Process (not an event) Source: Cahill, Kevin E., Michael D. Giandrea, and Joseph F. Quinn. 2015. “Retirement Patterns and the Macroeconomy, 1992 – 2010: The Prevalence and Determinants of Bridge Jobs, Phased Retirement, and Re-entry among Three Recent Cohorts of Older Americans.” The Gerontologist; 55(3), 384-403; doi: 10.1093/geront/gnt146.

What Defines an Involuntary Retirement Transition? Surveys of older workers consistently show widespread satisfaction with the non-financial aspects of work (e.g., engagement, social networks) (AARP, 2014). Retirement transitions reflect in part the flexibility of the U.S. labor market and have been shown to be largely voluntary (Maestas, 2010). On the other hand, other studies show that gradual retirement is involuntary for a sizable minority of older workers (Ebbinghaus & Radl, 2014; Flippen & Tienda, 2000; Hershey & Henkens, 2014; Hetschko, Knabe, & Schob, 2013; Seligman, 2014; Szinovacz & Davey, 2005). Involuntary can mean driven by layoffs, business closures, or family caregiving needs, but could also mean driven out of financial necessity.

Data: The Health and Retirement Study A nationally-representative longitudinal dataset of older Americans that began in 1992 Ongoing with new cohorts and biennial follow-up interviews Three cohorts of interest: HRS Core (51 to 61 in 1992); War Babies (51 to 56 in 1998); Early Boomers (51 to 56 in 2004); Mid-Boomers (51 to 56 in 2010) Methodology for examining retirement transitions Define full-time career (FTC) job = 1,600+ hours/year AND 10+ years of tenure Select respondents who were on a FTC wage-and-salary job at the time of their first interview Examine respondents’ work histories since the first interview

Sample Derivation: Men

Sample Derivation: Women

Measuring Financial Assets Financial assets are measured three ways: 1) total assets, including the value of any secondary residence (all real estate; vehicles; businesses; IRAs; stocks, mutual funds, and investment income; checking, savings, or money market accounts; and CDs, government savings bonds, and T-bills); 2) the total value of non-housing wealth; and 3) the net value of non-housing wealth (i.e., net of any amounts owed on the property)

Financial Assets of HRS Respondents Nearly 1 in 5 respondents had less than $25,000 total assets. Approximately one third of the HRS Core and War Baby respondents and one fifth of the Early Boomers held between $25,000 and $100,000 in total assets. When the value of housing is removed between one third and one half of the HRS respondents had less than $25,000 in total non-housing assets at the time of the first interview. When net assets are considered, approximately 7 out of 10 HRS respondents held less than $25,000 in financial assets and another 15 to 21 percent held between $25,000 and $100,000. Just 1 in 10 HRS Core respondents held more than $100,000 in net financial assets at the time of the first interview, and only slightly more (14% to 17%) of the War Babies and Early Boomers did so.

Bridge Job Prevalence and Type, by Gender and HRS Cohort

Bridge Job Prevalence and Type, HRS Core, by Gender and Total Assets (Including Secondary Residence)

Bridge Job Prevalence and Type, HRS Core, by Gender and Non-Housing Wealth

Bridge Job Prevalence and Type, HRS Core, by Gender and Net Non-Housing Financial Wealth

Discussion The focus of this paper is on retirement patterns from career employment. An analysis of job changes among non-career workers would be worthwhile. Another area for future research is an improvement in interdisciplinary understanding of the retirement process. Confusion exists across disciplines when it comes to key definitions, such as phased retirement, bridge employment, and reentry. Confusion also exists when it comes to the concept of retirement itself. While it is probably not realistic for researchers to agree on how to treat these concepts from an empirical standpoint, it does seem reasonable for researchers across disciplines to come to an agreement on some key concepts.

Conclusion The pathways from career employment to complete labor force withdrawal are far from uniform, and even the three-way construct of gradual retirement (phased retirement, bridge employment, reentry) masks a plethora of avenues that exist as a result of different combinations of these paths. We find that gradual retirements are common across all wealth levels, with wealth measure a variety of ways. The type of bridge employment, however, varies by wealth level. Those with lower levels of wealth are more likely to be working full-time in bridge employment and less likely to transition into self-employment. With the prospect of increased financial insecurity in the years ahead, these findings suggest that gradual retirements will continue to be the norm among older Americans. Further, this analysis suggests that gradual retirements consisting of short-term, full-time wage-and-salary employment may become more prevalent.