Over Half of Unemployed Older Workers at Risk of Involuntary Retirement

By Michael Papadopoulos, Bridget Fisher, Teresa Ghilarducci, and Siavash Radpour

• Millions Pushed Out of the Workforce: 2.9 million older workers left the labor force since March. These workers are at risk of having to retire involuntarily due to increased health risks coupled with decreased job prospects.
• More Involuntary Retirements to Come: If the rate of labor force exits continues over the next three months, we expect an additional 1.1 million older workers to leave the labor force, adding to the 2.9 million who already left. A total of 4 million people potentially pushed into retirement before they are ready will increase old-age poverty and exacerbate the recession.
• Policy Recommendations: Congress should increase and extend unemployment benefits for older workers, discourage withdrawals from 401(k)s and IRAs, lower Medicare eligibility to 50, and create a Federal Older Workers Bureau.

2.9 Million Older Workers Left the Labor Force Since March

Since March 2020, 2.9 million workers ages 55-70 left the labor force, 50% more than the 1.9 million older workers who left the labor force three months after the Great Recession began in 2007. In percentage terms, 7% of older workers left the labor force in recent months, compared with 4.7% of older workers in the Great Recession. Of the 2.9 million older workers who left the labor market: 500,000 Were Already Unemployed in March Of the 1.3 million older workers who were unemployed in March, 500,000 gave up looking by June and left the labor force. During this period, 38% of older unemployed workers left the labor force compared to 32% of younger unemployed workers. 2.4 Million Lost Their Jobs Between March and June Nearly 5 million older workers lost their jobs during these months. Of these, 2.4 million left the labor force entirely, or 7.0% of all workers ages 55-70, compared to 4.8% of younger workers ages 25-54.

Involuntary Retirement Expected to Increase

The longer the economy takes to recover, the more likely it is older workers will give up actively looking for work. As the recession continues, some workers may re-enter and leave the labor market. However, there is wide consensus among economists that we will not return to pre-recession levels of employment and output in the next year.2 Between March and June of 2020, 38% of unemployed older Americans gave up looking for work and left the labor force. If the rate of labor force exits continues over the next three months, we expect an additional 1.1 million older workers to leave the labor force, adding to the 2.9 million who already left. A total of 4.0 million people potentially pushed into retirement before they are ready can increase old-age poverty and decrease purchasing power, which can exacerbate an already sharp recession.

Older Workers Who Left the Workforce Are Unlikely to Return

Several indicators show 2.9 million older workers who exited the labor force are unlikely to return. First, 42% of the 2.9 million older workers who left the labor force report retiring, compared to the 28% at the start of the Great Recession. It is unlikely that the rapid increase in self-reported retirements during the COVID-19 recession reflects an increase in planned retirements. Second, 51% of older workers who went from employed to out of the labor force reported they first tried to find a job but gave up. Third, whereas labor force participation rebounded for younger workers in May and June, participation for older workers remains low, indicating that older workers did not re-enter the workforce even as many states relaxed restrictions on work and travel. Given the health risks older workers face by working, it is likely they are making the difficult choice between protecting their health and the decreased living standards that often come with involuntary retirement. 

Pandemic Increases Older Workers’ Vulnerability to Involuntary Retirement

Under normal economic conditions, older workers who leave the labor force due to layoff are unlikely to re-enter the job market and face having to retire earlier than planned. For example, ReLab found that between 2008 and 2014, at least 52% of retirees over 55 left their last job involuntarily, the result of job loss or a deterioration in health.4 Additionally, older workers who lose their job take nearly twice as long to find a new job compared to young workers.5 Even if jobless older workers find a new job, they can expect their new wages to be 23-41% less than their previous earnings.6 Health risks are likely discouraging many older workers from looking for work. The risks associated with COVID-19 infection increase with age, and the Centers for Disease Control and Prevention report that over 90% of hospitalizations and deaths due to COVID-19 come from people ages 50 and older.7 Some older workers who lost their jobs may have decided to stay out of the labor force to lower their risk of infection. However, given the difficulty older jobseekers face and the expectations of a deep and persistent recession, many who give up looking for work are likely to get pushed into retirement earlier than planned.

Women and Nonwhite Older Workers Especially Vulnerable to Involuntary Retirement

Occupations hardest hit by shutdown orders, including manufacturing and low-paying service jobs (in entertainment and food services), employ a greater share of older nonwhite and female workers. Meanwhile high-paying service jobs that disproportionately employ older white men (finance and utilities) did not shut down because they are more amenable to working from home.8 As a result, older nonwhite workers and older women sustained higher levels of job loss. Nearly 2 in 10 nonwhite older workers lost their jobs, and unlike older white workers, most of them left the labor force entirely. Among older workers, nonwhite women were hit hardest, with 19.5% losing their jobs (7.7% became unemployed and 11.8% left the labor force). The share of nonwhite older men losing their job was 19% (8.8% became unemployed and 10.2% left the labor force). Reflecting their disproportionate share of “safe” jobs, older white workers were the least affected by job loss.9 Less than 11% of older white men working in March reported being jobless in June (5.3% became unemployed and 5.4% left the labor force). Over 15% of white women lost their jobs since March, with 7.8% becoming unemployed and 7.5% leaving the labor force. The racial wealth gap and labor market stratification between Blacks and whites means workers of color are likely to have smaller or no retirement accounts.10 As such, people of color are at greater risk of poverty in retirement in general, but more so when they are forced to retire involuntarily.

Involuntary Retirement Often Decreases Living Standards

People who retire earlier than planned often claim Social Security benefits earlier, leaving them with lower monthly benefits for the rest of their life. They are also likely to have to begin drawing down their retirement assets in years when workers are often advised to, and plan on, maximizing their savings toward 401(k)s and IRAs. Finally, unplanned retirements mean assets must last more years than originally planned, increasing the risk of outliving one’s assets. All three factors put involuntary retirees at risk of poverty in retirement.

Policy Recommendations

Extend and Increase Unemployment Benefits

Older workers who are laid off experience longer spells of unemployment, which contributes to why many give up looking for work and retire earlier than planned. Increased unemployment benefits—even more than the $600 a week which expired July 31—can help older workers by allowing them to preserve retirement assets and put off claiming Social Security early, protecting their monthly benefits from the early retirement penalty. Moreover, Congress should suspend the job search requirement for older workers and their caretakers to be eligible for unemployment benefits.11 Older workers should not be forced to look for work at a time when work puts them at risk of severe illness or death.

Discourage Early Withdrawals

Congress should reinstate the 10% penalty fee for early withdrawals from tax-advantaged retirement accounts removed by recent passage of the CARES Act. A May survey showed 3 in 10 workers have withdrawn from their retirement accounts to make ends meet during the pandemic.12 Removing the fee encourages individuals to sacrifice their future needs for short-term spending. Rather, Congress should enact measures to ensure the income needs and health insurance needs of those who lost jobs in the COVID-19 recession. Discourage Early Withdrawals.

Lower Medicare Eligibility Age to 50 and Make Medicare First-Payer

Lowering the Medicare age to 50 would ensure older laid-off workers get the care they need.13 Moreover, making Medicare first-payer, meaning it would cover medical expenses before private insurance, would lower firms’ costs associated with providing health insurance to older workers. Easing the burden of hiring older workers in this fashion would help prevent involuntary retirements while increasing older workers’ health coverage.

Expand Social Security

Increasing Social Security and instituting a minimum benefit will soften the blow for workers who are forced to retire before they are ready and prevent many from falling into poverty. Congress should expand Social Security benefits by $200 per month and increase the Special Minimum Benefit up to 125% of poverty.

Create A Federal Older Workers Bureau

An Older Workers Bureau at the U.S. Department of Labor would formulate standards and policies to promote the welfare of older workers, improve their working conditions, and advance their opportunities for profitable employment. The Bureau would be tasked with three goals. First, provide resources to identify, research and analyze topics of concern for older workers. Second, create innovative policies to advance quality employment opportunities for this increasingly vulnerable population. Last, the bureau would be responsible for outreach and education. This would include efforts to share and promote policies identified and created by the bureau, but also to raise awareness of the economic and societal benefits of promoting quality work for older workers.