If baby boomers decide to postpone their retirement, it may not solve all of the country’s economic problems, but it will help address most of them.
So it’s good news that a growing number of boomers are postponing retirement. Today, almost 18% of people older than 65 are still working and the number is climbing. In 1993, only 11% of people older than age 65 were still working, according to the Bureau of Labor Statistics.
Of course, many boomers will be forced to keep working, because they have not saved enough or because the performance of their retirement portfolio has not met their expectations.
Others, though, will keep working simply because they want to work.
So how will it help the economy if boomers keep working beyond 65?
- Less strain on the Social Security system. Those over 65 who continue working will be contributing to the Social Security system, rather than taking from it. Assuming they live to the same age whether or not they retire, they will collect for a shorter period, but their regular payments will be higher. Every year they continue working, their Social Security payments will increase by about 8%. Social Security is a pay-as-you-go system; payments from today’s workers go to today’s retirees, so an increase in workers and a decrease in retirees is beneficial. By 2030, if people retire at age 65, the number of workers per retiree will drop from 4.5 to 3, according to a 2010 study by the Rand Corporation.
- Less strain on Medicare. Seniors who keep working will in many cases be able to continue using their employer’s health insurance and will not need to use Medicare.
- Less strain on Medicaid. By working longer, they will also presumably be able to save more for retirement and will be less likely to need Medicaid.
- A lower federal deficit. Those who keep working will continue to pay income taxes. The more taxes the government collects, the lower the federal deficit will be. The continued collection of state income taxes will, of course, help state government as well.
- Lower unemployment. It may seem counterintuitive, if older employees continue working, studies show the unemployment rate will decrease. A study by the Pew Economic Mobility Project found that from 1977−2011, every 1% increase in the employment rate of older workers was associated with a slight decline in youth unemployment. How can that be? Some older workers will create jobs by starting their own businesses. Others will contribute their skills and enable their employers to expand. In addition, if they remain in the workforce, the economy will grow faster, which will create more jobs. If they retire, they will be a drag on the economy.
Also consider that older employees have many years of experience and knowledge that will be missing in the workplace when they retire. They may not be as adept at tweeting or using new apps on their mobile phones, but they’ve been accumulating knowledge for decades longer than some of their co-workers. They simply know more.