Broadly conceptualized, retirement is the departure from a job or a career path, usually occurring sometime after the age of 50, where the individual retiree displays a limited or nonexistent psychological attachment to work after the departure. Retirees are normally differentiated from non-retirees based on several criteria, including tending to spend less time working for pay, having a source of income that is specifically designed for retirees, and viewing themselves as a retired person.
Actually, retirement was not always an understood phase that occurs after decades of work life. Retirement is a concept that became a virtual birthright as a part of the expanding industrial economy during the last century. It was the celebrated passage allowing an individual to leave the workplace and stop punching the time clock or to hang up the work clothes for good. In that context, individuals would simply go through the standard steps in preparing for a happy retirement, including planning for life after one’s career ends, securing financial resources, and considering what to do with all of the additional free time. However, beginning during the 1980s, the trend toward earlier and earlier retirement (made possible by more generous Social Security benefits and pension plans) began to shift back toward both delaying retirement for a number of years and continuing to work at least part time after initial retirement. Many workers were also setting a pattern for retiring and going to work for another employer.
Thus this entry describes retirement according to the clear direction experienced by many recent “retirees,” that is, that retirement is not the end of career development but rather a new career phase that can continue to feature meaningful work, but it might involve alternate work schedules and thereby allow for the rather comfortable combination of outside work with personal “retirement” pursuits. This direction in the thinking about retirement is supported strongly by the members of the baby boom generation who will begin retiring in great numbers in the early part of the twenty-first century. This oversized generation has already set the pattern for so much of the American culture, and now they will undoubtedly also change the perspective on the life and career phase called retirement.
By 2010, when the baby boom generation is expected to be retiring in great numbers, the United States’s labor market must find ways to keep older workers on the job longer. There simply will not be enough people to fill open positions in the job market. Demographically, the United States’s population is aging, and the generation following the boomers is much smaller in size. Labor shortages could occur if existing older workers, who possess many of the skills needed by corporations, were to retire and immigration does not sufficiently make up the loss. Other industrialized nations are facing the same issues due to aging societies in the midst of technological economies. The level of need is great enough to require an increase in employment of 25 percent for those over 55. Otherwise, there is concern that when baby boomers start retiring, the labor force may well shrink. A greater participation rate by the aging baby boomers is one scenario that could resolve that concern.
Structural Factors in the Retirement Decision
There are a number of variables to consider when analyzing the feasibility of delayed retirement by older workers. These factors take into account the reality that the contingent of older workers represent different segments of the population and are individuals with personal options in a democratic society. They vary by experiences, skills, educational level, income, and preparation for retirement. The restructuring occurring in the workplace, including layoffs, downsizing, and rightsizing, may be understood, at least partially, in the context of the phenomenon of transitioning from a goods-producing economy to a services-producing economy. It is an era characterized by knowledge, information, and technology, rather than manufacturing. Though change is always difficult to deal with, and a reasonable period of time is required for people of any age to cope with major transitions in their work life, technological advances are not incompatible with aging, and the increasing deemphasis on physical labor will be shown to be an advantage for older workers. The service economy and the restructuring brought about by technology renders their work less physically demanding. In fact, technology can be perceived alternatively as a factor that contributes to the extension of the work life for people in the later stages of their careers.
Another structural factor influencing the retirement decision is educational level. Education level is linked to income levels among the baby boomers and is strongly linked to labor market factors. Older employees who continue in the workforce tend to have a college education, whereas those who have retired are more likely to have a lower level of education. Furthermore, education level is linked to income, and income tends to be the most important factor in the retirement decision. More specifically, the point of reference for the retirement decision is replacement income, or the percentage of preretirement income replaced by Social Security, pensions, and savings. Therefore, expected income replacement rates affect retirement decisions such that as expected replacement income increases, the probability of planning to stop working increases.
Another structural factor that acts as a determinant in the retirement decision of older workers is their level of preparation for retirement. For example, many baby boomers might need to continue working longer because of deficits for Social Security and Medicare, discontinuance of defined benefit plans, and low savings rates. A problem with defined contribution plans is the ability for people to cash out before retirement. Only about one-third of the early disbursements are returned to retirement funds or other investments. In other words, many workers are spending significant portions of their retirement funds before they reach retirement.
Training for Older Workers
Older workers are experienced, and they represent stability. They often can be productive immediately or with little training. They are valuable but not always valued by organizations. Younger workers will require training programs (with older workers serving as mentors) as organizations need to teach valuable work skills. Older workers will not have to move aside to make room for the young. Their presence provides a better personnel mix, in that they can pass on the workplace culture, skills, and experience. Mentoring less experienced workers is also one way to confront the career plateau.
If older workers are to delay retirement and continue as productive workers, then they must become or remain up to date in workplace skills. Training can integrate older workers into the work environment so that they can continue to add value. Because of the rate of change in the business environment and with technological innovations, all workers need retraining every four to five years. Therefore, the need for training may be the same for older workers as for younger workers. However, training will often be by computer, and there is a perception that older workers are less technologically able than younger workers.
The structural factors in the economy would, on balance, facilitate the retention of older workers in the workforce. During the 1980s, labor market trends were favorable for older workers; after job displacement was so high in the early 1980s, there were shortages, and older workers were sought. Then with the recession in the early 1990s, displacements returned en masse, especially for workers aged 55 to 64, with unplanned and early retirements becoming a big factor. Another economic slump could result in an earlier than projected exit of the baby boomers from the workplace that, in turn, could lead to exacerbation of the projected employment shortage for later in the twenty-first century.
The Changing Workplace
The traditional workplace in a manufacturing environment could be described in terms of a given work location with workers assigned to well-defined jobs on a regular schedule. In the transition to a service economy, more emphasis has been placed on skills, and many employees are referred to as knowledge workers. Much of the work performed by knowledge workers can be performed from most any location—not necessarily in the employer’s office. Indeed, the concept of the workplace is in question as more and more workers are telecommuting with the approval of their employers. Nor is there the constraint of full-time regularly scheduled work assignments. The changing workplace can be particularly advantageous for older workers who may not want to continue working full time but want to continue working, whereas employers can still realize the skills and experience of their older workers.
Flexible Work Hours and Schedules
More employers are providing the option of non-traditional work schedules and the provision of alternate work arrangements. There is some recognition that the experience of older workers is valuable, and many would welcome continued employment in the context of policies that support flexible work schedules for a blending of work and personal pursuits. Such alternate work arrangements as flexible work schedules, part-time work, job sharing, phased retirement, and independent contracting could be seen as remedies for pension plans that penalize work after a certain age and limits on Social Security earnings. Allowing people to organize their own time, redesigning work-around projects, rethinking jobs to avoid long daily hours at the job site, and encouraging telecommuting are strategies that provide the flexibility that many older workers are seeking.
Phased Retirement and Bridge Jobs
Bridge jobs, or phased retirement programs, are desired by many older workers. Phased retirement refers to arrangements that provide for employees approaching retirement to ease into retirement gradually by reducing their work time and job responsibilities.
Phased retirement includes short-term projects, job sharing, part-time jobs, work at home, and telecommuting. Many Americans are separating from the labor force gradually, moving into part-time or short-term positions either in the same career or in a new pursuit. Bridge jobs and other accommodations could entice older workers to delay retirement if they were financially able to retire.
Highly educated, highly skilled, and technically able older workers are the ones whose irreplaceable experience is needed in tighter labor markets. Fortunately, with pensions, financial assets, and opportunity costs to consider, highly skilled older workers may be more inclined to participate longer in the workforce. Projected labor shortages, along with research that fails to show an association between age and decline in performance, should motivate employers to find ways to retain their successful older workers. Encouraging older workers to work longer would help alleviate the economic burden of entitlements, Social Security, and Medicare, effectively confront labor shortages, and provide the work opportunities desired by older workers themselves.
The barriers to the employment of older workers include corporate entrenchment, that is, attitudes that are difficult to change, higher costs of employing older workers, and pension rules that discourage continued employment. Business and government officials are considering policy changes that would allow older workers to both work and receive pension distributions without changing employers, and the prorating of benefits for older workers based on cost may help alleviate the higher costs for older workers. Attitude changes are reliant on educating employers on the need to accommodate older workers and their realization that there may be no better alternative than to rethink the employment of older people.
- Bridge employment
- Early retirement
- Late-career stage
- Obsolescence of knowledge and skills
- Phased retirement
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