Are traditional retirements a thing of the past? new evidence on retirement patterns and bridge jobs.

This article is reprinted by permission of the authors and the U.S. Bureau of Labor Statistics. This article is part of the U.S. Bureau of Labor Statistics Working Paper Series. All views expressed in this article are those of the authors and do not necessarily reflect the views or policies of the U.S. Bureau of Labor Statistics. The Alfred P. Sloan Foundation support this research through a grant to the Center on Aging and Work/ Workplace Flexibility at Boston College.

Introduction

Are permanent, one-time retirements coming to an end just as the trend towards earlier and earlier retirements among older American men did nearly twenty years ago? The leading edge of the Baby Boomers, those born between 1946 and 1964, will approach traditional retirement age in less than five years and, along with the transition, retirement as we know it will be redefined. The reason is simple: fundamental changes in Social Security, private pensions, health, and longevity mean that many Americans will be unable to finance twenty or more years of leisure later in life without a significant reduction in living standards. Some who can afford it may prefer not to retire in the stereotypical manner. Others might not have a choice. Whatever the reason, many older Americans may delay complete retirement and exit the labor force gradually.

Since the 1960s, increasing prosperity and more generous public and private retirement programs have meant that many older workers could retire early, supported by Social Security, defined-benefit pension plans, and savings. Each of these sources, however, may look much different in the future. Social Security is facing financial shortfalls over the second half of the traditional seventy-five year window, which will likely lead to some combination of lower benefits and replacement rates, later ages for normal and perhaps early retirement benefit eligibility, and higher Social Security taxes or other government revenues. Traditional defined benefit (DB) pensions are being replaced by defined-contribution (DC) plans like 401(k)s, with their attendant investment risks. Finally, private savings, as reported in the U.S. National Income and Product Accounts, are at their lowest levels since the Great Depression. (1) With reductions in these income sources, traditionally considered the three pillars of retirement income, and possible cutbacks in Medicare, many Americans will have to choose between working longer or enduring a lower standard of living during their retirement years.

Older Americans appear to be adjusting to the new retirement landscape already. A near century-long trend towards earlier retirement among men came to a halt in the mid-1980s. Labor force participation rates among older men have been relatively flat since then, and have increased in recent years. Among women, the decline in earlier retirements and the increase in women entering the labor force in the post-war period have resulted in large increases in labor force participation among older women over the past twenty years. (2) Retirement is also becoming more of a process than a single event. A significant number of individuals, previously estimated at one-third to one-half of retirees, take on short-duration or part-time jobs after leaving full-time career (FTC) employment. These jobs bridge the gap between FTC employment and complete labor force withdrawal, and are aptly called "bridge jobs."

While the existence of bridge job employment is not news, the degree to which it is utilized by today's older workers is. Much of the recent research on bridge jobs is based on data from the late 1990s, just before some fundamental changes in the retirement environment occurred. The stock market decline of 2000, combined with a continuing shift towards 401(k) pension plans, led to an unexpected decline in older Americans' retirement assets. Moreover, the Social Security normal retirement age began its legislated gradual increase from age 65, for those who turned 62 before 2000, to age 66, for those who turned 62 in 2005. This is equivalent to an across-the-board benefit cut, providing an additional incentive to remain in the labor force longer. Private savings rates also continued their decline, albeit with a slight uptick in the last year or so. Anecdotal evidence suggests that these events led to an increase in the labor force participation rates of older Americans, in the form of delayed retirement or, in some cases, labor market reentry after retirement. (3)

Recent waves of the Health and Retirement Study (HRS), the premier data set for the study of older Americans' retirement behavior, now enable an up-to-date analysis of the status of bridge job activity. The HRS now contains information on the retirement patterns of individuals aged 51 to 61 in 1992 for a full ten years, spanning the run up in the stock market in the late 1990s, its subsequent decline, and the continuing recovery. Using these data we explore whether the majority of retirees still exit the labor force in the stereotypical fashion, or if the majority now retire gradually, in stages, utilizing bridge jobs on the way out.

This article is structured as follows. The next section discusses how the retirement landscape has changed over the past two decades, most notably, the abrupt end of the trend towards earlier and earlier retirement among older men. We then document the extent of bridge job employment among today's retirees and those on the cusp of retirement, to see if their behavior resembles that of their predecessors. We conclude that changes in the retirement income landscape since the 1980s are beginning to have an effect and, as a consequence, traditional retirements in the form of a one-time, permanent event have become the exception rather than the rule.

Background

The average retirement age, defined here as the youngest age at which half of the population is out of the labor force, declined dramatically among men during the 20th century, from age 74 in 1910 to age 70 in 1950, age 65 in 1970 and age 62 by 1985. (4) The decline is predominantly a result of increasing prosperity over the past century and the growth of public and private retirement programs. As productivity and real wages increased, workers spent a portion of their increased wealth on leisure, including earlier retirement. Since the mid-1980s, however, the average retirement age for American men has remained relatively unchanged. While there is some debate over the cyclical or permanent nature of this break in trend, it is clear that the retirement landscape has changed. The end of mandatory retirement for most workers in 1986, the shift away from traditional DB pension plans towards employee-controlled DC plans, improvements in health and longevity, and changes in the physical nature of jobs have all created incentives for workers to stay in the labor force longer, either by remaining on their career jobs, by taking on bridge jobs, or both.

Many studies have explored the factors that affect retirement decisions, such as age, health and health insurance status, and Social Security and private pension eligibility and incentives. (5) Other studies have focused on retirement patterns. Honig and Hanoch (1985) investigated partial retirement trends using Retirement History Study (RHS) data from 1967 to 1973. They found that the decision concerning whether or not to participate in the labor market is of primary importance to older workers, while the choice between part-time or full-time work is secondary. Ruhm (1990) used the same source to analyze partial retirement and found that the majority of workers leave career jobs for partial retirement at some point in their working lives. He argued that pension status and Social Security regulations have little effect on this decision and that uncertainty concerning retirement income and institutional job restrictions (e.g. requiring full-time employment for most jobs) are potential causes. (6)

Quinn (1999) studied retirement patterns and bridge jobs in the 1990s. Using the first three waves of the HRS, Quinn estimated that between one-third and one-half of older Americans would take on bridge jobs before exiting the labor force completely. Quinn also found that age, health status, type of pension, and pension eligibility are all important determinants of whether an individual is employed in either a FTC job or a bridge job, or is retired. He concludes that "retirement patterns in America are much richer and more varied than the stereotypical one-step view of retirement suggests." (7)

Chen and Scott (2002) and Purcell (2005) both noted that several forms of gradual retirement through bridge jobs are currently available to workers, including job sharing, reducing work schedules, and the rehiring of retired workers as temporary employees. These studies conclude that older workers are remaining in the labor force longer, that retirement patterns are diverse, and that financial incentives, health, and uncertainty are key explanatory factors. Maestas (2004) observed that more than one-third of retirees in their 50s go back to work after retirement, defined as complete withdrawal from the labor force. Most notably, Maestas found that returning to the labor force is often anticipated prior to retirement, and that non-traditional retirements are often not associated with negative outcomes.

This article focuses on the importance of gradual retirement--bridge job behavior--in the retirement patterns of today's older American workers.

Design and Methods