Laid-off Boomers: Retirement as Default

The natural reaction to losing a job is to get a new one.  But when older people become unemployed, some view it as a dilemma: look for work or just retire?

The presence of a financial safety net significantly increases the likelihood that an older, unemployed person will retire.  And that decision often comes quickly after they lose their job, concluded a new study by Matt Rutledge, an economist for the Center for Retirement Research, which supports this blog.

“The brevity of [their] jobless spells suggests that older individuals have little tolerance for a job search” and will “make a quick exit” if they have financial resources backing them up, Rutledge wrote in a recent summary of his research.

His findings get to the heart of the difficult choices facing older workers when they are laid off, no more so than amid the Great Recession when the jobless rate among people over age 55 hit a record 7.3 percent.  Rutledge tracked individuals between 55 and 70 who lost their jobs between 1990 and 2012.

Some older people react by retiring immediately, the study found.  But among those who didn’t make the decision right away, half eventually found new a new job.  The other half retired within the year, perhaps out of frustration with the job market.

Rutledge found a strong link between the decision to retire and the availability of financial resources, specifically Social Security, pensions, and personal wealth.  Older individuals with a working spouse – and another paycheck coming in the door – were also more likely to retire than single people who were out of work.

Whether retiring was actually a good decision is beyond the scope of this study.  For many, persisting in a job search might’ve resulted in employment that would improve their financial prospects, not just immediately, but also in retirement if they were able to save more or delay claiming their Social Security.

Simply having access to financial resources isn’t a good enough reason to retire.  The critical issue is whether your savings, pensions, and Social Security are enough to retire on.