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Vectra Bank Expert Jeff Thredgold

That Aging Thing

Written by Jeff Thredgold, President, Thredgold Economic Associates

April 20, 2011

With five speaking presentations in five different industries around the nation during the past eight days, the Tea Leaf was delayed by one day…my apologies.  Next week’s issue will be on time, although presentations in southern Utah, in (or perhaps on) Bermuda, and in San Diego will no doubt put me behind in other areas.  To my better half…no, I am not complaining

It’s no secret that many economic and financial areas were severely impacted by what we now call the Great Recession, the worst since the Great Depression.  The changing nature of retirement would easily find a place on the list.

Millions of people who judiciously saved during their working years had visions of early retirement, with a view that diligent efforts to save money would help them meet income needs in their Golden Years.  Many people have been able to live their dream.

Unfortunately, millions of others saw their dreams either tarnished or shattered, with loss of employment, sharp declines in the value of retirement funds, and unexpected declines in home values.  Every age group, every generation, every part of the country was hurt by economic and financial developments of the past few years.

The nation’s official unemployment rate declined from 9.8% last November to 8.8% in March…the fastest four-month decline in 27 years…and clearly good news.  There is more to the story, however.

One reason the unemployment rate is lower is the fact that a smaller share of Americans are at work or counted as part of the labor force than at any time since 1983.  Just 45.4% of Americans (of all ages) were employed during 2010, down from a peak of 49.3% in 2000 (USA TODAY).

In terms of working age adults, the civilian labor force participation rate held at 64.2% in March, while the employment to population ratio was 58.5%, both down in recent years (Bureau of Labor Statistics, or BLS).  Only 66.8% of men held jobs last year—the lowest level on record—versus more than 80% of men who held jobs during the 1960s.  National unemployment rates would now be regularly quoted in the 10% to 12% range if the share of people counted as part of the labor force today matched that of just a few years ago.

Long-Term Trends
It’s no secret that working age men had been leaving the workforce for decades.  Others took an early retirement incentive from an employer, hoping to then find other gainful employment. 

Still others with a specific skill set lost jobs and were unable to obtain similar employment, leading to an earlier retirement than previously planned.  The loss of millions of jobs in construction and manufacturing in recent years simply added to the exodus.

The rise of women holding jobs largely offset the loss of working men in recent decades.  The share of women holding jobs rose from 36% in 1960 to 57% in 1995, with the total soon leveling off.  The share of women employed was 56% in 2010 (USA TODAY).

Now Working Longer
Shattered dreams of early retirement, or less belief of just a routine retirement at 65, have led a greater share of older men to stay in, or return to, the labor force in recent years.  During the prior economic upswing lasting six years between November 2001 and November 2007, a net 10.4 million jobs were created.  Almost one in seven jobs was filled by workers age 55 or older (The Wall Street Journal).
Since the Great Recession began in late 2007, 7.4 million jobs have disappeared.  For over-55s however, a net 1.8 million jobs have been added.  This reflects more people putting off retirement for various reasons, as well as companies taking advantage of those workers with proven skills. 

The labor force participation rate among those over age 55 bottomed out in the mid-1990s at 29%.  It has since risen by 11% to 40%.  For those over 65, the rate has gone from around 12% to 17% during the same time (The Wall Street Journal)
A higher labor force participation rate of older workers, in addition to the economic and financial factors noted above, also reflects the fact that people are living longer and are more interested in staying active with employment.  Too many of us have seen people retire early or at 65 with visions of travel and lots of golf, only to be bored to tears after the first year.

At age 65, most people can expect to live another 20 years or so.  Having a regular source of income besides Social Security and possibly a pension provides older workers with a greater sense of security, helping to boost overall consumer spending. 

Suffer the Young
Greater numbers of older people staying in the labor force, combined with the loss of millions of jobs in recent years, has had a serious impact on youth employment.  The BLS notes that less than half of all 16-to-24 year olds had a job last summer, the worst on record.  Of those 16-19 years of age who are actively seeking employment, 24.5% were unemployed in March.

Too few people save adequately for retirement, with many starting a savings program too late in life to meet their retirement needs.  Too few couples have discussions about what their retirement dreams are and how they must prepare for them.

Too few workers of all ages take full advantage of 401(k) savings programs offered by employers, simply feeling they can’t afford the reduction to their cash flow.  Simply stated…there is no more powerful way to save than having an employer give you a 25% or 50% or 100% match of the funds you save in a 401(k).  The current tax deferment makes it even more valuable.

Many older people simply state that they will never retire.  I find myself saying this.  They will work well into their 60s, 70s, or even 80s, not recognizing that the body can break down.  Energy levels can diminish, while undreamed of physical and mental limitations emerge. 

At the same time, however, the ongoing shift in the economy from goods producing to service providing jobs (typically less physically demanding) will help those wishing, or required, to work longer.  A Tea Leaf issue in coming weeks will address some of the global implications of retirement, as well as the financial pressures upon governments of a Graying population…

…stay tuned

Finance Expert Right Boarder