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Below is a complimentary Demography Unplugged research note written on 11/16/20 by Hedgeye Demography analyst Neil Howe. Click here to learn more and subscribe.

Pandemic Forcing Boomers into Retirement - 11 18 2020 11 06 45 AM

Between 2019 and 2020, the number of retired Boomers increased by 3.2 million. Until now, the annual average for this figure has been 2 million, leading some to speculate that Covid-19 is behind the sudden jump. (Pew Research Center

NH: Every month, in its household Current Population Survey, the BLS asks Americans if they are working or looking for work. If neither, it then asks the reason. "Retired" is one reason. Someone who says "retired" is very likely out of the labor market for good.

Pew's quick analysis of CPS monthly data shows that Boomer retirements have clearly accelerated in 2020.

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Over the last 8 years, by this measure, 2.1 million Boomers have been retiring on average in a typical year. That's a lot less than the 3.6 million Boomers who are each year turning age 62 (Social Security's early retirement age).

But keep in mind that only one-third choose to take benefits at age 62 and only two-thirds by age 65. Another third keep working beyond age 65. So a lot of these Boomers are putting off retirement. Some, inevitably, will die before they retire. And, with each passing year, Boomers in every age bracket over age 60 have been more likely to be in the labor force and employed. Translation: With each passing birth cohort, Boomers are increasingly putting off retirement--that is, retiring later.

Why? For two reasons. There is a growing share of later-born Boomers (who tend to be more affluent) who like to work. And there is a growing share (who tend to be less affluent) who have to work. 

By dint of their growing numbers and their later retirement, Boomers have therefore generated large yearly additions to the labor force over the last decade. Starting in 2011, when the first 1946-born Boomers reached age 65, seniors have been adding nearly half a million workers annually. That's a lot. Over those years (2011-19), total net additions by Americans of all ages averaged just over one million annually. Senior Boomers, in other words, have been responsible for nearly half of America's employment growth. (This has lately been true not just in America, but in most of Europe as well. (See "Retirement-Age Workers Giving the World a Boost.")

Now, from 2019 to 2020, that extra boost to employment and real GDP growth seems to be coming to a full stop. And not just temporarily, but permanently: Those 3.2 million Boomers who say they're "retiring" will not return in significant numbers. In one year we have gone from 25.4 million retired Boomers (that's 35% of the 72 million total) to 28.6 million retired (40%). The best we can hope for is that this share will not keep rising as fast in 2021 and 2022.

Which Boomers are choosing to speed up their retirement this year? By examining IPUMS cross-tabs on the CPS data for 3Q of 2020, Pew gives us a pretty good idea.

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First, these are mostly Boomers over age 65, so we're not talking about early retirement. Second, they are most likely to live in cities and in the Northeast. This is a clear sign that their choice is probably steered by the local severity of the pandemic. Finally, they are most likely to be less educated (high school or less) and to be nonwhite. Hispanics show the biggest acceleration in retirement (+4% in this sample) and then Asians (+3%). Anomalously, blacks show no change.

All of this suggests that most of the retirement speed-up is happening among low-earning Boomers employed in workplaces in which safe social distancing isn't possible. Rather than endanger themselves--or perhaps after already getting sick--they are deciding that maybe now is a good time to call it quits.

Contrary to stereotype, Boomer workers in general are no less likely to be able to work online than younger workers. In fact, they are more likely. The problem is that--for Boomers as for every younger generation--the ability to work online is highly correlated with educational level.

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Once again, unfortunately, we see evidence of the pandemic's uniquely regressive impact--even among seniors. Let's return to the steadily rising labor force participation rate of Boomers past age 65.

This rise, as I mentioned above, is being driven by two very different groups: high-income Boomers, often in the professions, who want to keep working; and low-income Boomers in service or manual jobs who need to keep working.

The rapidly rising average wage for 70- or 75-year-olds over the past decade indicates that the first group has been growing faster than the second. (See "Are Retiring Boomers Suppressing Wage Growth?")

Now, as the size of the first group shrinks due to the pandemic, the average wage for seniors is likely to accelerate even faster. And that often leaves the first group not just with low earnings and (often) little retirement security, but now with no earnings and even less security.

We've written often about the economic hardships facing many late-wave Boomers as they move past age 65. (See "The Old and the Bankrupt," "Why Are Seniors Flipping Burgers?" and "Boomers Stuck in 'Low-Quality' Jobs"). Now, rather than "low-quality" jobs, many will be stuck without jobs at all.