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Correspondence: Address correspondence to Kevin E. Cahill, PhD, Analysis Group, Inc., 111 Huntington Avenue, 10th Floor, Boston, MA 02199. E-mail: kcahill{at}analysisgroup.com
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Key Words: Economics of aging • Partial retirement • Gradual retirement • Older workers • Retirement income
Older Americans appear to be adjusting to the new retirement environment already. In the mid-1980s, a century-long decline in the labor force participation rates of older men (that is, earlier and earlier retirement) ended. Since that time, these participation rates have been steady, with modest increases in recent years (Purcell, 2005; Quinn, 2002). For older women, relatively flat participation rates since the 1960s turned dramatically upward at about the same time. During the past two decades, many more older men and women have continued to work than the prior retirement trends would have predicted.
These findings on retirement trends (when people leave the labor force) are based on a dichotomous view of retirement—one is either in the labor force or one is not. Labor force participation could describe a number of very different situations for an older worker, including continued employment on a long-standing career job, work on a new full-time job, or movement to part-time employment. This article focuses on retirement patterns—not just when but how people retire; in particular, how older Americans leave their career jobs and, eventually, the labor force altogether.
For some workers, retirement is a single, unambiguous event. At some point, a worker leaves a career job and the labor force as well, often claiming Social Security and employer pension benefits at the same time. But for many Americans (a majority, we will argue), retirement is a process, not a single event, and includes one or more short-duration or part-time jobs that culminate in labor-force withdrawal. These jobs bridge the gap between full-time career employment and complete labor-force withdrawal and are aptly called "bridge jobs." Labor-market disengagement late in life looks a lot more like initial labor-market engagement decades earlier, with some experimentation, than the simpler dichotomous view of retirement would have suggested.
Although the existence of gradual retirement is not news, the degree to which it is utilized by today's older workers is. Much of the recent research on bridge jobs uses data from the 1990s and earlier, before some fundamental changes in the retirement environment occurred. With a continuing shift toward 401(k) pension plans, the stock market decline of 2000 led to a large and unexpected reduction in many older Americans' retirement assets. In addition, the Social Security normal retirement age began its legislated increase (at 2 months per year) from age 65, for those who turned 62 before 2000, to age 66, for those who turned 62 in 2005. This is equivalent to an across-the-board benefit cut, providing an additional incentive to remain in the labor force longer. Private savings rates also continued to decline, albeit with a slight increase since 2001 (U.S. Department of Commerce, 2005). Anecdotal evidence suggests that these events led to an increase in the labor force participation rates of older Americans in the form of delayed retirement or, in some cases, labor-market reentry after retirement.
Recent waves of the Health and Retirement Study (HRS), the premier data set for the study of older Americans' labor-market behavior, enable an up-to-date analysis of the status of retirement activity. In prior research using the HRS (e.g., Quinn, 1999, 2002), a significant number of the respondents were still employed in their career jobs, and researchers made conclusions on retirement patterns based only on participants who had chosen to leave their career jobs early, which was not a representative sample. The HRS now contains information on the retirement behavior of the sample for a full 10 years, through 2002, spanning the run up in the stock market in the late 1990s, its subsequent decline, and its initial recovery. The vast majority of the people in the sample have now left their career jobs. Using these new data, we explore how people leave these career jobs and estimate the extent of bridge-job activity among older Americans.
We begin with an overview of the literature on retirement transitions. We then describe the extent of bridge-job employment among today's retirees through a brief theoretical presentation, some bivariate tables, and a multivariate analysis. We conclude that recent changes in the retirement environment are having an effect on labor-market behavior late in life, and that bridge jobs have become the most common avenue of departure from full-time career jobs.
The average retirement age, defined here as the youngest age at which half of the population is out of the labor force, declined dramatically among men during the 20th century, from age 74 in 1910 to age 70 in 1950, age 65 in 1970, and age 62 by 1985 (Burtless & Quinn, 2002). The decline was primarily a result of increasing prosperity over the past century and the growth of public and private retirement programs. As productivity and real wages improved, workers spent a portion of their increased wealth on leisure, including earlier retirement. Since the mid-1980s, however, the average retirement age for American men has remained relatively constant. Although there is some debate over the cyclical or permanent nature of this break in trend, it is clear that the retirement landscape has changed. The end of mandatory retirement for most American workers in 1986, the shift away from traditional defined-benefit pension plans toward employee-controlled defined-contribution plans, technological change, improvements in health and longevity, and changes in the physical nature of jobs have all created incentives for workers to stay in the labor force longer, either by remaining on their career jobs, moving to bridge jobs, or both.
Many studies have explored the factors that affect retirement decisions, such as age; the wage rate; health and health insurance status; and Social Security and employer pension eligibility, benefit amounts, and incentives (Anderson, Gustman, & Steinmeier, 1997; Munnell, Cahill, & Jivan, 2003; Samwick, 1998; Stock & Wise, 1990). Other studies have focused on retirement patterns. Ruhm (1990), who defined a career job as the longest spell of employment with a single firm, used the Retirement History Study from the 1970s (Irelan, 1988) in order to analyze partial retirement and found that the majority of workers left career jobs for partial retirement at some point in their working lives. Han and Moen (1999) investigated the increased variability in retirement age by studying both the actual transition from the labor force and the different work-life trajectories of older workers at six upstate New York firms. They concluded that retirement timing depended on three independent dimensions: "historical context" (external trends), "biographical pacing" (career path), and "social heterogeneity" (gender and social variations; p. 197). Mutchler, Burr, Pienta, and Massagli (1997) examined a sample of older men from the Survey of Income and Program Participation in order to determine the extent of "blurred" versus "crisp" labor-force exits. The former consists of multiple transitions among three categories (employed, unemployed, and out of the labor force), whereas the latter is a single transition from employed to out of the labor force. Mutchler and colleagues found that only one quarter of the sample exhibited any transition during a 28-month period and that 60% of observed transitions were blurred.
Quinn (1999) studied retirement patterns and bridge jobs in the 1990s. Using the first three waves of the HRS, he estimated that between one third and one half of older Americans took bridge jobs when leaving career employment. He also found that age, health status, type of pension, and pension eligibility were all important determinants of whether an individual was employed on a full-time career job, was employed on a bridge job, or was retired. He concluded that "retirement patterns in America are much richer and more varied than the stereotypical one-step view of retirement suggests" (p. 1).
More recently, Maestas (2004), defining retirement as complete labor-force withdrawal, observed that almost one half of older workers experience partial retirement or reenter the labor force after retirement, and found that, prior to retirement, workers frequently anticipated labor force reentry. Chen and Scott (2003) and Purcell (2005) also explored work options late in life and noted several forms of gradual retirement currently available to workers, including job sharing, work schedule reductions, and reentry as temporary employees. Purcell concluded that older workers remain in the labor force longer than they used to, that retirement patterns are diverse, and that financial incentives are key retirement determinants.
This article focuses on the importance of gradual retirement in the retirement patterns of older American workers who have had full-time career jobs late in life.
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Using this model as a guide, we utilized data from the HRS in order to explore older Americans' patterns of labor-force withdrawal. The HRS is a nationally representative panel data set designed to help understand retirement patterns, determinants, and consequences; to monitor work disability; and to examine the relationships among labor supply, health status, income and wealth, and saving and consumption over time (Juster & Suzman, 1995). As shown in Table 1, the HRS sample includes more than 12,600 individuals (in more than 7,600 households), with respondents aged 51 to 61 in 1992 and their spouses, of any age. The first wave of the HRS was based on in-home interviews in 1992. Subsequent waves were based on extensive follow-up interviews conducted every other year.
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Because we are interested in retirement, we focused our analysis on individuals who had work experience at age 50 or older and obtained a sample of more than 5,300 men and nearly 5,200 women (Table 1). Of these respondents, 80% of the men and 58% of the women had had an identifiable full-time career job at age 50 or older. How these older Americans left their career jobs was the focus of the empirical work below.
Table 2 illustrates the degree to which sample sizes were sensitive to changes in the definition of a full-time career job. Although we think 5 years of tenure is too short to be considered a career job and 20 years is too restrictive, 8, 10, and 15 years are all reasonable choices. If we reduce the length of tenure required for a full-time career job from 10 to 8 years, there is a 3% increase in the number of men with a full-time career job at age 50 or older. Conversely, an increase in the time required from 10 to 15 years results in a 13% reduction in the number of men with a full-time career job at age 50 or older. The analogous changes for women are slightly larger (+5% and –21%, respectively). The absence of significant fluctuations in the sample size for tenure requirements shorter than 10 years, combined with a moderate drop when an additional 5 years are required, suggests that the 10-year tenure requirement for a full-time career job is reasonable. These definitional changes alter somewhat the number of career-versus-bridge jobs, but not the qualitative conclusions discussed below.
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In order to track individuals' labor-force withdrawal patterns over time, we returned to the last full-time career job identified for each member of the sample and used the longitudinal nature of the data set (and questions about jobs held prior to 1992 that had been asked in the initial interview) in order to construct the path from full-time career employment to labor-force withdrawal for each respondent. Table 4 demonstrates the extent of bridge-job activity estimated in 1996, when the most recent comparable study on bridge-job behavior was performed (Quinn, 1999), and again in 2002, using the additional three waves of HRS data. The estimated percentage of men who either were working at a bridge job or had last worked at a bridge job before leaving the labor force increased from 27% in 1996 to 47% in 2002. For women, the analogous increase was from 20% to 44%. The reason for these altered estimates was not an increase in the extent of bridge-job activity during those 6 years, but that more of the sample had left their career jobs between 1996 and 2002 and some had moved to a bridge job, which we could now observe. These 2002 estimates of bridge-job activity (47% of the men and 44% of the women) are still underestimates, because they included none of the workers still on a full-time career job (now down to only 16% of the men and 22% of the women) and none of those for whom we could not determine the exact nature of their current or last job (classified as "Don't Know" in the table).
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We also experimented with further limiting the sample to those who stayed on their full-time career jobs past age 55 or past age 60. For those who left such employment after age 55, 54% of the women and 52% of the men moved to bridge jobs. For those 60 and older, an overly strong restriction in an analysis of retirement today, 48% and 42% of the men and women, respectively, took bridge jobs. These changes were consistent with effects of age on the patterns of retirement described below. As we restricted the sample to those who left full-time career jobs after age 55 and age 60, the percentage of the bridge jobs to which they moved that were part-time employment increased; for example, to 74% for the men and 81% for the women in the 60 and older category.
Non-traditional retirements are even more common than these estimates suggest, as some individuals who transition directly out of the labor force from a full-time care job reenter at a later date. We estimate that about 9% of individuals who were out of the labor force for at least two consecutive HRS waves reentered the labor force by 2002. Taken together with bridge-job activity, this result implies that traditional one-step, permanent retirements are now in the minority among those who held full-time career jobs.
Covariates of Bridge-Job Activity
The HRS surveys provide detailed information about health status, pension status, wealth, and many other factors related to retirement decisions. Some of these variables (such as health) are time variant, and we do not know their values prior to 1992, when some of the transitions took place. Therefore, we based our analysis of bridge-job determinants on only those individuals who were still on full-time career jobs in 1992, and we followed their exit patterns through 2002.
Tables 5 and 6 present the first transitions from full-time career jobs for several demographic and economic factors: age, health status (subjectively assessed), health insurance status, pension status, and wage rate. These selected variables yielded intriguing conclusions, most of which remained in the more sophisticated multinomial analysis below, which considers many other determinants as well. In each case we asked: Of those workers who left their career jobs, what percentage moved to a bridge job rather than directly out of the labor force?
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Table 5 also examines the health status of the HRS respondents who were on full-time career jobs in 1992. Most of those who left their career jobs and were in self-assessed excellent or very good health took on bridge jobs (54% of the men and 59% of the women). In contrast, only 46% of the men and 50% of the women with self-assessed good health did so, as did less than 40% of both men and women who described their health status as either fair or poor. (We also experimented with health variables based on the presence of a work-limiting health condition or limitations in the number of daily activities that the respondent could perform, with similar qualitative results). Individuals who left their full-time career jobs in relatively good health, measured a number of ways, were more likely to move to a bridge job. We suspect these findings underestimate the overall importance of health in job transitions late in life, because we included only those people still on a full-time career job in 1992. Many individuals with serious health issues would have left their career jobs and possibly the labor force before 1992 and therefore would not have appeared in the sample analyzed here.
Table 6 considers three economic factors that are known determinants of retirement decisions. We measured health insurance status in terms of portability (i.e., Would a respondent's health insurance coverage remain intact if he or she left a full-time career job?). Government-provided insurance, private insurance, and insurance through a spouse's employer are all unaffected by the respondent's employment status and are considered portable. Health insurance through an individual's employer is also considered to be portable if the coverage will be maintained in retirement. Note that we restricted our analysis of health insurance to individuals younger than age 65 in 2002, because those aged 65 and older were eligible for Medicare. Men and women who had no health insurance on their full-time career jobs were most likely to take bridge jobs when they left their career jobs, as did 77% of these uninsured men and 73% of the women (see last column of Table 6). Also, men and women without portable health insurance were slightly more likely to exit the labor force completely compared with other workers in the sample. A caveat is that health insurance may be a proxy for other personal or job characteristics. There is much that is not being held equal in this analysis, especially age, which we controlled for in the regression analysis.
In comparison with other men in the sample, men with defined-benefit pension plans, which often contain strong age-specific financial incentives to leave the job, were less likely to remain on their full-time career jobs in 2002, were more likely to have left the labor force, and were least likely to move to bridge jobs when they did make transitions. Men who had no pension or who had only defined-contribution plans on their full-time career jobs were more likely to remain in those jobs than were men with defined-benefit plans. In particular, whereas only 41% of men who left career jobs with defined-benefit pensions took bridge jobs, nearly 60% of their counterparts with no pension and 54% with defined-contribution pensions did so. Among women, those with only defined-benefit pension plans were the most likely to leave the labor force directly and the least likely to utilize a bridge job on the way out.
Perhaps most interesting among the economic characteristics is that bridge jobs appeared to be more common at both ends of the wage distribution. Low-wage and high-wage individuals were more likely to take on bridge jobs when making transitions than were those in the middle of the wage distribution (see last column of Table 6). This U-shaped pattern of bridge-job behavior by wage was consistent with expectations. Among low-wage individuals, many took on bridge jobs out of financial necessity, whereas individuals at the upper end of the wage distribution, many of whom could have afforded to retire, may have chosen bridge jobs for quality-of-life reasons.
Multivariate Analysis
The cross-sectional analyses above suggest that bridge-job behavior is very common among older Americans, especially among those who are relatively young and healthy, who are without health insurance, and who are at the lower or the upper end of the wage spectrum. By using a methodology similar to that of Quinn (1999), we modeled the first transitions of HRS respondents who were on a full-time career job in 1992 and for whom later employment status could be identified. Each worker faced three choices: he or she could continue on the career job through 2002, leave the career job for a bridge job, or exit the labor force. We estimated the coefficients of the model separately for men and women by using multinomial logistic regression.
Tables 7 and 8 present marginal effects estimated at sample means for men and women, respectively. As expected, younger men and women were more likely than others to remain on their full-time career jobs (the significant negative coefficients increased with age), as were individuals in excellent or very good health. Bridge-job behavior was also more common among the youngest men and women and declined with deteriorating health status. Men and women with dependent children (and college tuitions ahead?) were more likely to remain on their career jobs than others (5 to 8 percentage points more likely, respectively), and women (but not men) with dependents who did transition were more likely than those without dependents to move to a bridge job.
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Both men and women without health insurance coverage on their full-time career jobs were significantly more likely to take on bridge jobs than were those with health insurance coverage. Of those with coverage, there was no statistically significant difference between those whose coverage was portable and those whose coverage was not.
Owning one's own home had no discernible effect on the decision to remain on the full-time career job, but it did reduce the odds of taking a bridge job when one left the career job, for both men and women. Wealth effects were inconsistent, as is often the case in such empirical work, perhaps because those with high wealth also have an unmeasured taste for work, which is one of the reasons why they have accumulated wealth.
The multivariate analysis confirms the cross-sectional descriptive results. Bridge-job behavior was more common among younger retirees, the healthy, the self-employed, and those without defined-benefit pension plans. One important prediction is that, as defined-benefit plans continue to decline in importance, bridge-job behavior will become more common, as may already be the case.
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What does the importance of bridge-job employment mean for individuals and for the country as a whole? Overall, continued work is generally good news. As more individuals remain productive and have higher incomes late in life, fewer are dependent on public programs and the nation has more goods and services to distribute among an aging population. The story is more complicated from an individual perspective. Bridge jobs can provide older Americans with the opportunity to stay active and productive, to experience a different line of work, and to earn income, augmenting Social Security, pension income, and returns from savings. For others, however, especially those at the lower end of the socioeconomic scale, bridge jobs may reflect financial necessity—an unfortunate and undesirable finale during the twilight of their work lives.
Nonetheless, bridge-job employment is advantageous to many older Americans, to the firms wise enough to hire these productive and experienced workers, and to the nation as a whole. The key is to understand how and why older Americans choose to leave the labor force, and how best to harness the desire of many of them to continue working beyond traditional retirement ages. This article takes a first step and assesses just how prevalent these nontraditional retirement patterns are today. We have found that one-time, permanent retirements are now the exception, not the rule, among today's older Americans with full-time career jobs. Retirement for most of these workers is a process, not a single event.
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Footnotes |
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1 Analysis Group, Inc., Boston, MA.
2 Office of Productivity and Technology, U.S. Bureau of Labor Statistics, Washington, DC.
3 Department of Economics, Boston College, Chestnut Hill, MA.
Decision Editor: Linda S. Noelker, PhD
Received for publication September 29, 2005. Accepted for publication April 20, 2006.
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