Saturday, September 27, 2014

Forced Retirements also Drive Declining Labor Force

* Part of this post was excerpted and edited from a post at AOL JOBS: More Than 1 Million Baby Boomers Are Secretly Unemployed (by Claire Gordon).

The Bureau of Labor Statistics releases its tabulation of the unemployment rate every month. But that leaves out one major segment of the population: Those forced into early retirement.

Older Americans were less likely to lose their jobs in the Great Recession — maybe because of their in-house seniority or because of the skills they possessed, they weren't laid off. And because of their financial obligations, or their inability to sell homes, or to recoup losses in retirement plans, they also didn't quit — and as AARP surveys have shown, they actually planned to work much longer than they had earlier anticipated.

But it's also well known that older workers were also far less likely to find a new job if they did quit or were terminated — in part, because of age discrimination. So if they did lose their job during or after the recession, many gave up their job searches and tapped into their Social Security benefits early, becoming retirees.

How many Americans that were forced into retirement because they couldn't find work? Last year (at the request of AOL Jobs) Matthew Rutledge, an economist at the Center for Retirement Research at Boston College, attempted to estimate the size of this group that remains invisible to the Bureau of Labor Statistics. What he found: At the height of the recession, as many as 53,000 extra Americans were retiring early each month. In total, the recession has driven around 1.4 million additional Americans to collect Social Security early.

No agency collects data on early or forced retirement, but the Social Security administration releases data on how many people have started to claim benefits each month. Rutledge estimated how many people one would expect to be claiming benefits if there hadn't been a recession, and then looked at the difference between the prediction and the reality. And that difference is stark.

Between June 2008 and June 2010, an average of 39,100 extra people claimed benefits each month than past trends predicted. In the 12-month period ending in November 2010, the average peaked at 53,192 monthly additional claims.

The official unemployment rate in November 2010 was 9.8 percent when 15.1 million were counted as "unemployed". But in the previous two years, more than 1.05 million extra Americans had claimed Social Security. If these people were added to the unemployment rolls, the jobless rate that month would actually have been 10.4 percent -- higher than at any point since 1983. It's an especially stunning number, given that the trend for almost 20 years has been for people to retire later in life.

But then, in 2011, the number of claims began to go down. In fact, in the 12-month period ending May 2012, an average of 4,000 fewer people claimed Social Security than expected each month. That isn't because America's older workers suddenly found lucrative employment, but because so many had already claimed their benefits early.

"You're someone who's turning 64 in 2012, and you've looked at how long you've worked, and decided that's when you want to claim," explained Rutledge. "And the recession happens, and you lose your job, or your stock portfolio goes in the tank, or your family really needs your help, your adult child moves back. So you decide you want to claim earlier."

A person is eligible for full retirement benefits at 66 (if born between 1943 and 1954 -- the retirement age goes higher the younger you are). But a person can claim as early as 62, if they're willing to take a 25% cut in their monthly benefits.

By 2012, it seems that a lot of those 62-to-65-year-olds had already put themselves on the Social Security rolls, leading to a slump in the numbers. As Rutledge put it: "The elephant has been passed through the snake."

But the snake has left behind a stinking pile. In the summer of 2012, the number of claims once again rose above expectations, and has stayed elevated ever since. This may be because long-term unemployment remains so high. If a person turns 62 and has been without work for a year and a half, filing for an early Social Security claim is probably a tempting proposition. (According to Rutledge's research, jobless individuals ages 62 and older have little patience for the job search, and tend to stop searching and retire within a year of losing a job. (* Source: Matthew Rutledge, "How Long Do Unemployed Older Workers Search for a Job?" — Rutledge: Issue Brief 14-3, Center for Retirement Research at Boston College, August 27, 2014).

But still, there have been just 133,000 excess Social Security claims in the past two years, a far cry from the wrenching figures of winter 2010. If these are people who would otherwise be unemployed, it would hardly nudge the jobless rate at all. But it still adds up. Between March 2008 and March 2013, 1.4 million more Americans have opted for Social Security than originally expected.

Social Security claims are by no means a perfect way to judge who's retiring early because they can't find work. After all, many people can start collecting Social Security retirement benefits while still looking for work. Or they may retire and live off other funds (IRAs, 401ks, union pensions, their life savings, etc.) before deciding to cash in on Social Security later on.

But multitudes of older Americans clearly did take advantage of Social Security before the official retirement age. And for many, that will come at a cost. Those who start collecting at age 62 see a 25 percent reduction in benefits. If you were to die at 70, that's a pretty good deal, since you had an extra four years. But if you live into old age, that becomes a sizable cut.

"If you're a healthy woman, you're going to end up costing yourself a lot of money," explains Rutledge. "If you're a man in poor health, it might actually make sense."

If you were laid off in the recession, even better — because a study out of Wellesley College shows that over time, a recession can have significant, adverse effects on the health of older workers—and in some cases, can cut life expectancy by up to three years.

In Rutledge's view (from another article at PRB), analysts have not fully appreciated the profound effects the Great Recession is having on retirement decisions and will have for many years to come:

"Financial markets have recovered, but if investors [e.g. 401k and ROTH IRA retirees] had to cash out to support themselves, or got skittish and bailed out, they may have missed out on that recovery, which means they may not have the financial resources to stop working. Additionally, workers who experienced a long jobless spell but were lucky enough to find re-employment probably want to make up for the resources they depleted by staying on the job. But the recession also contributed to early retirements by knocking a lot of people out of the labor force who may have preferred to keep working into their late 60s."

* Editor's Note: In an email from me to PRB regarding their article "Boomers Likely to Delay Retirement" (by Paola Scommegn) I dispute one of their claims:

This statement --- "And record numbers began receiving [disability] benefits" is absolutely not true — at least, not in the way you present it.

Yes, a record number of "claims" were made for Social Security disability benefits after the onset of the Great Recession (just as there are always more claims during an economic turndown), but actual SSD "awards" have began to decline and "terminations" have also increased. And while although a "record number" are now in payment status for disability, the same can be said for a "record number" of retirees, or a "record number" of people within the population. We also have a record number of high school grads. We had 200 million people in the U.S. 40 years ago, now we have over 300 million (A record high). So always expect “a record number” as our population grows. We’ve also had a record number NOT IN THE LABOR FORCE (8.9 million on disability vs. 92.5 million not in labor force).

It's a bit misleading to state "and record numbers began receiving benefits" without putting any numbers into context or in relation to other factors. The actual number of people in payment status for disability (8.9 million) has only been in proportion to the overall growth in number of people within the population who were once in the labor force. For example: If 10% were unemployed in September 2009 (15.9 million) and 25% were unemployed in 1933 (est. 13 to 15 million), when did we have "record unemployment" — when the most people were counted as unemployed, or when the greater percentage of the labor force was without a job?

And the vast majority of those who do receive SSD are older workers (over 50) who did not have advanced educations — and have worked for 30 to 40 years in labor intensive jobs — mostly people that we would EXPECT to file a disability claim — not young slouches who had preferred to be on the government dole instead of working at a minimum wage job.

Read some of my posts below (in no specific order) on the subject (although, there are more) for the links to all my sources -- including links to academic studies, government statistics, and reports by the Federal Reserve, the CBO and the GAO. Most of the articles I have read on this subject (if not ill informed), are usually ideologically bents to deliberately make SSD look more like a "welfare" program that's being grossly abused, when it's not. Even with the new rules (e.g. mental illness, etc.) making it "easier" to file a claim, it is still every much as difficult to actually be awarded on a claim — and usually takes up to 3 years after many appeals (unless one is diagnosed to die within a year). The Social Security administration has people who file claims go visit their own doctors for assessments, and they generally look for reasons NOT to award a claim for disability.

July 19, 2013
Report: Disability Claims and Awards Declined

July 22, 2013
The Last Word on Social Security Disability

February 10, 2014
Record Number of Boomers Left the Labor Force

Sunday, March 9, 2014
Retirees and the Declining Labor Force

Sunday, May 11, 2014
8.9 Million on Disability vs. 92.5 Million not in Labor Force

Tuesday, July 23, 2013
Disability Awards Plummet - Social Security (SSDI)

Tuesday, July 16, 2013
Disability Claims and Awards in Decline

Tuesday, June 25, 2013
Disability Awards are Down, but Unemployment Still Hurts

Saturday, September 6, 2014
Older Workers, Retirees, Disabled, Boomers and the Declining Labor Force

Tuesday, December 17, 2013
Discouraged Workers, not Disabled, Shrinking the Labor Force

Friday, November 15, 2013
Study on Social Security Disability Insurance (SSDI) 2013

Wednesday, December 28, 2011
Social Security Disability - Last Resort for the Unemployed

* IF PRB responds, I will post an update to this post as a comment.

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