The Urban Institute is collaborating with the Stanford Center on Longevity on the challenges and opportunities for living well while living longer. Motivated by the Stanford Center on Longevity’s Sightlines Report, Urban scholars are exploring issues and policy initiatives across the age span, from millennials to baby boomers. This post is part of a series culminating in our June 14 event, Rethinking the Future: the Opportunities of Longevity.

Over the past quarter century, the share of older workers in the labor force has surged. But despite these gains, older workers are still falling short of their career potential. Public policies discourage work at older ages, but sound reforms could boost older adults’ employment, improve their financial security, and ease the economic pressures of an aging society.

Between 1995 and 2015, the share of adults ages 62 and older in the labor force doubled to 9 percent. Women ages 65 to 69 are 69 percent more likely to work today than they were 20 years ago, and men are 35 percent more likely. Most striking, the labor force participation rate for older men plunged throughout most of the past century and then reversed course about two decades ago.

Working longer improves retirement security by enabling workers to accumulate more Social Security credits, devote part of their increased earnings to retirement savings, and shorten the period over which those savings would be spread. Urban Institute research found that people could improve their living standards by 9 percent by working one more year and 56 percent by working five more years. Low-income people gain even more by working longer.

Longer careers would also generate additional payroll and income tax revenue, improving the government’s fiscal outlook. If all nondisabled adults worked just one more year than they planned, the combined payroll and federal income tax revenue generated would exceed the size of the Social Security deficit.
Fifty years ago, health problems were more prevalent among older people, more jobs were physically demanding, and fewer older people had college degrees. Nonetheless, older men were more likely to work in 1965—when 58 percent of 65-year-old men participated in the labor force—than they are today.

Older men’s employment rates lag far behind their health gains. Because longer lives typically mean more healthy years, a reasonable gauge of whether older adults are reaching their work potential is to compare labor force participation rates across generations by expected years of remaining life rather than by years since birth. Men born in 1950 would have turned 65 in 2015 and could expect to live for about another 18 years. In contrast, men born  in 1900 could expect to live another 18 years at age 58. If men who expected to live another 18 years worked at the same rate today as 50 years ago, 90 percent of 65-year-old men would participate in the labor force in 2015, more than twice the actual rate. 

Why don’t older adults work as much as they used to, given their improved health? Part of the reason is because we’re wealthier than we were 50 years ago; more older people have accumulated rights to significant Social Security and pensions benefits. More seniors can now afford to stop working earlier and enjoy retirement. But some of our public policies also discourage work at older ages. Some simple reforms could remove obstacles for older workers:

• Count all employment years when computing Social Security benefits. Only the 35 highest-earning years figure into the Social Security benefit formula. Including all years in the formula would increase work incentives for older people, especially those who prefer to reduce their work hours (and earnings) as they age.
• Trim or eliminate Social Security payroll taxes for older workers and their employers. Covered workers and their employers each pay 6.2 percent of their earnings (up to $118,500 in 2016) to Social Security, even though older workers don’t usually gain much in future Social Security benefits because of the 35-highest-earning-years formula. Lowering these taxes for older workers might not reduce total tax revenue much if people work longer and pay more income taxes.
• Eliminate Social Security’s earnings test. Social Security beneficiaries who have not yet reached the full retirement age (now 66) pay a 50 percent tax on any earnings above a certain amount. Every dollar they earn above $15,720 in 2016 reduces their Social Security benefits by 50 cents, a strong work disincentive.
• Allow Medicare to cover health care costs for older workers. Employer-sponsored health insurance pays health care costs before Medicare for workers ages 65 and older, adding thousands of dollars per year to the cost of employing each older worker at firms that offer health insurance.

Other policies could also make it easier for older people to remain employed, such as promoting entrepreneurship at older ages, encouraging lifelong learning, and more vigorously combatting age discrimination. Several common-sense measures could remove obstacles to old-age employment, improve retirement security, raise government revenues, and boost economic growth.

More posts in this series:

• What we need to understand about the future of work
• Financial security and longevity go hand in hand

• Living long and living well: How can we care for the nation’s caregivers?