Phased Retirement: Who Opts for It and Toward What End?

2. Background

A host of demographic and economic trends may be producing opportunities for new patterns of work and retirement as well as new attitudes towards work by older Americans. Specifically, Americans are living longer and seem to be experiencing better health into later life, thereby enabling them to remain in the world of work longer if they desire. Financial needs resulting from a lack of assets, not being covered under defined benefit pension plans, the increasing burden of health care costs, or the lack of retiree health insurance may be keeping older Americans in the labour force or pushing them back into it. At the same time, the passage of age discrimination laws and changes in the nature of work are providing more opportunities and incentives for increased labour force participation by older workers. As a result, expanded opportunities for phased retirement may be on the increase. This section provides a background discussion of these trends and influences, many of which will be represented in the methodology and analytical models discussed in subsequent sections.

2.1 The Demography of Ageing

Based on fertility, mortality, and health trends, the U.S. population is projected to continue ageing well into the first half of the twenty-first century. These forecasts are subject to change, of course, but one study suggests that current forecasts may be overly conservative and that society may be ageing faster than officially projected (Anderson, Tuljapurkar, and Li, 2002). However the future unfolds, it is likely to include continued work well into the older ages.
A major determinant of population ageing is declining fertility. The mean fertility rate (the average number of children born to a woman in her lifetime) has dropped from 3.61 in 1960 to 2.04 in 1998, and it is expected to decline to 1.90 by 2025 (U.S. Census Bureau, 2000). With smaller cohorts of babies being born, older people will assume a larger proportion of the overall population. With relatively fewer younger workers available, there may be more needs and opportunities for older persons to continue working.
As they are living longer, older Americans appear to be better able to participate in the workforce. Life expectancy at birth has increased from 70.6 years in 1970 to 76.9 years in 2000 with steady increases expected through the rest of this century. Currently, people who are aged 65 have a life expectancy of 18 years, compared to 13.9 years in 1950 (U.S. Census Bureau, 2000; 2004). Figure 1 illustrates the increase in life expectancy at age 65 for the United States from 1950 to 2000.

Figure 1: Life Expectancy at Age 65, 1950-2000 (in years)
Source: U.S. Census Bureau, 2004.

Older Americans are not just living longer but they are generally healthier. Physical impairments increase with age, and chronic health conditions have not declined much over time3. But, despite the overall tendency for people to lose functionality as they age, health measures tend to suggest that the old of today are really less ‘old’ (in terms of ability and functionality) than prior generations of older Americans (Riche, 2001). In 2001–2002, 73% of older Americans reported their health as good, very good, or excellent, with little difference by gender. The percentage of people aged 65 and over reporting fair or poor health declined from 29% in 1991 to 27% in 2001 (Federal Interagency Forum on Ageing Statistics, 2004)4.
Cohort size also affects the overall picture: the large cohort of baby boomers (some 76 million individuals born from 1946 to 1964) will accelerate the growth of the older population over the coming decades (Riche, 2001).
The changes in fertility, longevity, health, and cohort size are decreasing the proportion of younger workers and increasing the number of work-eligible older Americans, which should result in additional workers aged 65-plus available to take advantage of phased retirement. Also, formal constraints on later-life employment are lessening and thereby altering workforce patterns for the aged.

3 Chronic health conditions such as arthritis, diabetes, and heart disease are diseases that are rarely cured and that impose a significant health and financial burden. In 2001–2002, of those aged 65 and older, 40% reported having arthritis, 50% having hypertension, 31% having heart disease, and 21% indicated that they had contracted cancer at some point (Federal Interagency Forum on Aging Statistics, 2004). From 1982 to 1994, the percentage of Americans with chronic disabilities declined slightly from 24% to 21%, but the total number of persons with chronic disabilities increased from 6.4 million to 7 million (Manton et al., 1997).
4 Between 1984 and 1995, Americans aged 65 and older reported improvements in physical functioning as measured by the ability to walk a quarter mile; climb stairs; reach up over one’s head; and stoop, crouch, or kneel. However, there are significant differences among groups of Americans. For example, in 1995, 33% of older black Americans were unable to perform at least 1 of 9 physical activities versus 25% of older white persons. Among men and women in every age group, non-Hispanic blacks and Hispanics were less likely to report good health than non-Hispanic whites, and positive health evaluations tended to decline with age for all groups (Federal Interagency Forum on Aging Statistics, 2000).

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