The United States is in the middle of a severe retirement crisis. Data released by the Bureau of Labor Statistics today show that older workers are hanging on to their jobs longer and are struggling more to find a new job if they lost their old one than at any time in almost three decades.
The retirement crisis is largely due to massive losses in retirement wealth. Total retirement wealth losses in all retirement savings plans amounted to an inflation-adjusted $2.8 trillion—in 2008 dollars—between 2007 and 2008. But these massive financial market losses only apply to those lucky enough to have retirement savings. Even before the crisis hit, only 45.1 percent of all private sector workers participated in a retirement plan—a traditional pension or an individual savings account—through their employer, down from 50.3 percent in 2000. The remainder of the workforce must make due with Social Security and a job well past the retirement age—if such a job can be obtained.
Workers in their prime earnings years have not been spared from this decline. Among workers between the ages of 45 and 54, the share with an employer-sponsored retirement savings plans was 57.4 percent in 2007, the most recent year for which data are available, down from 63.8 percent in 2000.
The lack of access to retirement savings coupled with a massive financial market crisis leaves older workers scrambling for other sources of income. Social Security still remains the bedrock of retirement income security in the United States, but benefits for those retiring today are less than they were for previous generations due to benefit cuts—a higher normal retirement age—enacted in 1983. This leaves wage earnings as the primary pressure valve for cash-strapped retirees.
The irony that our current answer to the retirement crisis is to work longer should not be lost on anyone. We are only now reaping the fruits of decades of failed retirement income policies that place too much emphasis on individual responsibility and too little emphasis on income security.
Today there are more older workers in the labor force than was the case in the past. The employed share of the population 65 and older, for instance, was 15.9 percent in the second quarter of 2009. This was slightly below its last peak of 16.4 percent in the second half of 2008, but well above any levels since 1971 prior to the current crisis.
Older workers also seem to be better situated to hang on to their jobs than younger workers amid the turmoil on Wall Street and the massive layoffs on Main Street. The employed share of workers between the ages of 55 and 64 was 61.1 percent in the second quarter of 2009—down from 62.3 percent in the fourth quarter of 2007—the last quarter before the recession started. The employed share of workers 65 and older stayed the same, standing at 15.9 percent in both the fourth quarter of 2007 and the second quarter of 2009.
In comparison, the employed share of workers between the ages 25 and 54 dropped from 79.7 percent in the fourth quarter of 2007 to 76.1 percent in the second quarter of 2009—a decline that was 200 percent larger than the decrease in the employed share of the population between the ages 55 and 64.
Older workers clearly are able to maintain their position better than younger workers in this crisis, often because of a phenomenon known as job lock. They are keenly aware that finding a new job in the current situation is somewhere between very difficult and near impossible and thus continue to work in their current employment to find more income support than in the past.
Those older workers who lose their jobs, though, do not go quietly into retirement any more as had been the case in the past. The unemployment rate for older workers has reached record highs as job seekers remain large unsuccessful in finding new employment. The unemployment rate for workers between the ages of 55 and 64 averaged 6.5 percent in the second quarter of 2009, its highest level since the first quarter of 1983. And the unemployment rate for workers 65 and over was 6.2 percent in the second quarter of 2009, its highest level since the first quarter of 1977.
Older men are especially vulnerable in the current labor market. The unemployment rate for men between the ages of 55 and 64 averaged to 7 percent and that of men 65 years of age and older averaged to 6.5 percent in the second quarter of 2009, compared to 5.9 percent for women in the same age groups.
There are also substantial racial differences in the employment prospects of older workers. In the second quarter of 2009, the employed share of whites between the ages of 55 and 64 was 62.3 percent compared to 52.3 percent for African Americans in the same age group. The employed share of workers 65 years old and older was 16.1 percent for whites and 14.7 percent for African Americans.
Older African Americans also struggled more than whites in finding a new job. The unemployment rate for African Americans between the ages of 55 and 64 was 7.9 percent in the second quarter of 2009, compared to only 6.2 percent for whites. And the unemployment rate for African Americans 65 years old and older was 7.0 percent in the second quarter of 2009 compared to 6.2 percent for whites in this age group.
The double onslaught of a financial crisis and a major recession has left older workers between a rock and a hard place. The decimation of their life savings has them hanging on to their jobs longer or unsuccessfully looking for a new job to a larger degree than was the case in the past.
Using employment as a pressure valve if the best laid retirement savings don’t work out as planned is not a viable solution. The answer to the current retirement crisis has to come from policies aimed at helping workers build more retirement wealth in traditional pensions, in individual savings accounts and in Social Security. Working longer will not become the new retirement, but saving more will.
Christian E. Weller is an Associate Professor at the University of Massachusetts Boston‘s Department of Public Policy and Public Affairs, and a Senior Fellow at the Center for American Progress. To learn more about the Center’s retirement policy proposals, please go to the Retirement page of our website