Retirement and Older Americans

These tables update previous estimates of the lifetime value of Social Security and Medicare benefits and taxes for typical workers in different generations at various earning levels based on new estimates of the Social Security Actuary. The "lifetime value of taxes" is based upon the value of accumulated taxes, as if those taxes were put into an account that earned a 2 percent real rate of return (that is, 2 percent plus inflation). The "lifetime value of benefits" represents the amount needed in an account (also earning a 2 percent real interest rate) to pay for those benefits. All amounts are presented in constant 2012 dollars.

The recession has increased joblessness among older Americans. These graphs and tables report unemployment rates and how they have varied by age, sex, race, and education since 2007.

Changing age demographics have powerful implications for the shape of the nation's work force. Formal models of labor force participation fail to take into account that as the relative supply of younger workers declines, employers will increasingly turn to older workers to meet their demand for labor to provide goods and services. Increased labor force participation among older workers can add to the solvency of Social Security and the broader federal budget. Policymakers in both the public and private sectors can accommodate this trend by removing barriers that discourage hiring and retaining older workers.

Recent budget pressures have led many states to cut future pension benefits for state workers. Using New Jersey as a case study, this report describes how these reforms ignore larger employee recruitment and retention issues for today's more mobile workforce. State retirement plans generally do not attract younger workers, lock in middle-aged workers even if a job is not a good fit, and push older workers into retirement. Recent reforms also shift pension financing burdens to the young, largely sparing taxpayers and current older workers and retirees.

To control rising pension costs, many states are reducing the generosity of the retirement plans they offer their employees, partly by increasing required employee contributions. These reforms, however, ignore the employee recruitment and retention problems created by traditional pension plans. Using New Jersey as a case study, this brief shows how state retirement plans discourage younger workers from joining the state's workforce, lock in middle-aged workers even if a job is not a good fit, and push older workers into retirement. Recent reforms make these plans even less appealing to a modern, mobile workforce.

When state pension plans are underfunded, someone eventually has to pay for the shortfall. Many recent reforms designed to improve plan finances shift burdens to the young, particularly by making many new employees net contributors to—rather than beneficiaries of—these plans. Using New Jersey as a case study, this brief shows how states require higher levels of employee contributions, invest them in somewhat risky assets, and then, like a bank or financial intermediary, pay back many employees less in benefits than what they contributed and expected to earn on those contributions.

Twenty-somethings fresh out of college or graduate school may need to rethink starting jobs in state government, cautions a report from the Urban Institute's Program on Retirement Policy. The new recruits could end up paying for their state’s unfunded pension liabilities without much to show for their efforts.

Nearly every state has experienced record economic insecurity recently, measured by the Economic Security Index (ESI) as the percentage of people losing more than a quarter of their available income from one year to the next without sufficient liquid wealth to offset the loss. More than one in six in New Hampshire (lowest), and nearly one in four in Mississippi (highest), suffered large losses between 2009 and 2010. All states experienced a substantial rise in insecurity between 1986 and 2010. The insecurity rank of states changed little over the 1986-2010 period--state differences in insecurity appear to be persistent.

This review of federal policy toward older workers with disabilities highlights the work disincentives built into the Social Security Disability Insurance (DI) system. For example, DI does not pay benefits or provide rehabilitation services until workers are fully disabled, by which time intervention is often too late to promote employment. Because partial benefits are unavailable, DI beneficiaries risk losing all cash benefits (and eventually Medicare coverage) by earning just a dollar more than the earnings limit, reducing the use of DI work supports. Rules governing Social Security retirement, Medicare, and phased retirement also discourage employment by older adults with disabilities.

As unemployment surged during the Great Recession and subsequent recovery, older workers were less likely than their younger counterparts to lose their jobs. However, unemployed workers in their fifties were about a fifth less likely than those age 25 to 34 to become reemployed between 2008 and 2011, and they experienced steep wage losses. Median hourly earnings for reemployed workers age 51 to 61 were 21 percent lower on the new job than the prelayoff job, compared with only 7 percent for those age 25 to 34. These declines may reflect lost productivity or employer reluctance to hire older workers.