Early Retirees May Help Hold US Unemployment Rate Down
Early retirement by baby boomers could be helping keep the unemployment rate down even as payroll employment falls, according to Standard & Poor’s Chief Economist David Wyss.
In Older But Not Wiser: Why Americans Remain Dangerously Unprepared For Retirement, Wyss points out that as the oldest Baby Boomers turn 62, the sharp rise in the number of workers near the average retirement age will result in a group of workers with a less-than-normal need/desire to work. A jump in layoffs could convince many of these workers to retire early—either in response to buy-out offers or as a result of weak job prospects.
The result could be a drop in payroll employment with a less-than-expected rise in the unemployment rate. Labor statistics might not even count these workers as “discouraged” because they will report themselves as retired.
This could explain why in the last few months, we have seen such a sharp drop in the number of people employed, while unemployment claims have remained relatively low, Wyss writes.
Employers could be shedding workers into retirement rather than into unemployment.
The report outlines the challenges facing Baby Boomers as they near retirement:
The S&P 500 will have its worst decade since the Depression if it closes below 1,469 at the end of 2009. The decline in home prices is also eroding wealth.
Low interest rates mean low incomes for retirees. The 10-year Treasury note is yielding only 3.9%, up from the lows of a few weeks ago but well below its 6.9% average since 1960.
Retiring in a period like this strains assets in the best case—and this is far from the best case. Asset values have been declining, while saving rates have hovered near 0%. If older workers aren’t adding to their wealth and if their asset values are falling, the prospects of a comfortable retirement are receding. The average household had wealth equal to 558% of after-tax income at the end of 2007, down from 569% a year earlier and 618% at the market peak in 1999.
Wyss’s bottom line: “We’re in trouble. The average American is worried about retirement but is doing little to provide for it.”
Maybe working longer is the best answer. After all, the retirement age was set at 65 in 1933, when average life expectancy was 63. With life expectancy today at 78 years, perhaps we should just plan to work until we’re 80.
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