As concerns about retirement savings have intensified, many older adults have begun working beyond traditional retirement age. By working longer, they can improve their retirement security by increasing their future monthly Social Security payments and shortening the time they must rely on their savings. But does delaying retirement deepen income inequality for older adults by leaving those with health problems behind?
Delayed retirement can boost financial security but excludes workers with health problems
Employment and income for 62-to-64-year-olds has increased substantially over the past two decades for people in good health. But employment and income have stagnated for older Americans with health problems, who face lower income than their healthier counterparts for the rest of their lives.
To assess how later retirement affects income inequality at older ages, we examined how the relationship between health status, employment, and income has shifted for people eligible for early Social Security retirement benefits but too young to receive full retirement benefits.
Income declines linger for older adults with health problems
Income for workers ages 62 to 64 is increasingly tied to their health status, which deepens income inequality at older ages. Moreover, older adults with limited education and income, who stand to gain the most from working longer, are more likely to have health problems than their higher-earning counterparts.
When adults ages 62 to 64 who have health problems face income slumps, the shortfalls persist throughout their later lives because of permanently smaller monthly Social Security benefits and a diminished ability to accumulate wealth.
These findings are particularly concerning as evidence mounts that health status at midlife and older ages is worsening and health disparities by income and education are growing. When we compared 63-to-65-year-olds who did and did not attend college, we found that those who did not attend college were 65 percent more likely to report a health problem that limited their ability to work. These health problems reinforce the growing wage inequities in the labor market that increase income inequality at older ages.
Policy implications for Social Security and the disability safety net
As life expectancy at older ages increases, we might need to adjust Social Security’s retirement ages to contain the costs of retirement programs and encourage older adults to work and contribute to the economy. But raising the retirement age without implementing policies to protect low-income people, especially those with health problems, could undermine retirement security for many older Americans.
Raising the program’s early retirement age above 62 could strip benefits from people with health limitations who cannot work. Raising the program’s full retirement age without changing the early retirement age would widen the income gap between people in good health who can work until they qualify for full benefits and people with health problems who retire at the earliest possible age and receive reduced benefits.
Strengthening Social Security’s disability program could protect older adults with health problems, but the program faces financing challenges. Altering Social Security’s retirement benefit formula to make the system more progressive could also help beneficiaries with health problems because many of them have low lifetime earnings.
Delaying retirement helps older adults significantly improve retirement security, but policymakers should be aware that it can deepen income inequality by excluding older adults who are not healthy enough to work longer.