Why Boomers Can't Retire

By Stan Hinden | July 2008

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Stan Hinden

"The future ain't what it used to be"
— Yogi Berra.

Well, Yogi, you can say that again. At this moment in time, it looks like the future for millions of baby boomers isn't going to be anything like what they've been expecting.

For decades, demographers, academics, economists and journalists have been telling us how someday the boomers would revolutionize retirement in America. We were beguiled with portraits of healthy, energetic retirees leaving their jobs and devoting themselves to personal improvement and community service.

Well, that someday has finally arrived. And guess what? Millions of boomers who want to retire find that they can't retire. Several national opinion polls and studies reveal that many would-be retirees are so overwhelmed by money worries and concerns about health insurance that they have decided to delay retirement!

It wasn't supposed to be this way. The glowing forecasts of the experts assumed that when the boomers reached retirement age, they would be ready and even eager to leave their jobs for the greener pastures of self-fulfillment.

The reality, it now seems, is quite different.

This is the year that the oldest boomers turn 62, making them eligible for Social Security. Normally, when people reach that milestone, many of them not only take their benefits but they also quit working.

But the new polls tell us that a lot of boomers won't be quitting their jobs anytime soon. They've decided they can't retire — for reasons that were unforeseen even a few years ago.

The reasons include:

A national economic slowdown that looks and feels a lot like a recession.
A sharp decline in housing prices, which has reduced the net worth of millions of homeowners and their families.
Rapidly rising prices for food, gasoline and utilities.
Stock market losses, which have cut into the value of workers' 401(k) savings.

These economic and financial traumas have had a direct impact on people's ideas about retirement. An AARP study reports that 27 percent of all workers age 45 and older have now postponed their plans to retire. The finding is part of the AARP study, "The Economic Slowdown's Impact on Middle-Aged and Older Americans."

In addition, many workers who hoped to retire at 62 or 63 have been prevented from doing so because they need their company health insurance. They know that if they quit their jobs, they won't be eligible for Medicare, the federal health insurance program, until they reach 65.

In fact, health insurance is a key factor in whether or not people feel they can retire, according to reports from Watson Wyatt Worldwide, a global consulting firm, and the Employee Benefit Research Institute (EBRI) in Washington.

Many employees, we are told, are afraid that if they retire and give up their company health insurance, they may find that private health insurance is either unavailable for health reasons or simply too expensive.

Some workers can find a way around the problem if they have access to other health insurance coverage from a spouse, from a company retiree health plan or from the temporary federal insurance program called COBRA.

Beyond the specific factors causing workers to delay retirement, there is also a general economic malaise that makes retirement seem unattractive, according to a report from the Pew Research Center, called: "Inside the Middle Class. Bad Times Hit the Good Life." It contains this dramatic observation:

"Most Americans feel stuck in their tracks. A majority of adults in this country say that in the past five years they either haven't moved ahead in life or have fallen backwards. This is the most downbeat assessment of personal progress in nearly a half-century of polling by the Pew Research Center and the Gallup Organization."

Surely, that malaise is helping discourage older workers from going ahead with plans to retire.

Watson Wyatt identified several other factors that affect retirement decisions. For instance, the consultants said, workers who have defined benefit pension plans are more likely to retire than workers who have only defined contribution 401(k) style savings plans.

Why? Because workers feel that the regular income they'll get from their pensions will be more reliable than the financial help they'll get from the money they've accumulated in their 401(k) plans-savings which are often subject to the ups and downs of the financial markets.

Generally, pensions are funded by employers who provide retirees with a stream of income for life. But employees with 401(k) plans are responsible for saving and investing their own money — although employers often "match" a portion of the worker's contributions.

One added factor which affects when people leave their jobs, Watson Wyatt said, is the gradual increase in the age at which people can retire and receive full benefits from Social Security. As that age increases from 65 to 67, workers who were born in the 1940s are less likely to retire early than people born in the 1930s.

Taken together, these situations are adding to the growing number of older workers in the American work force, according to Craig Copeland, senior research associate at EBRI.

In 1993, he noted, about 29.4 percent of people age 55 and older were part of the work force. But by 2006, that number had increased to 38 percent.

Among people 65 to 69, the percentage of those in the work force grew from 18.4 percent in 1985 to 29 percent in 2006.

Full time work also is replacing part time work. "Not only are members of the older population more likely to work, they are more likely to be working full-time, full year," Copeland observed.

To some extent, these developments represent a change in boomer expectations. In surveys taken 10 years ago, 80 to 85 percent of boomers said they expected to work after they retired to keep busy. But the emphasis was on casual, part-time work, and only a small number of people said they would work because they needed the money.

These days — given current economic conditions — many boomers are staying on the job because they need their paychecks.

To be candid, the continuing inability or failure of many people to save for retirement remains a crucial issue as to when, if ever, they can quit working.

"Many Americans have little money put away in savings and investments," concluded the authors of the 2008 Retirement Confidence Survey, a well-regarded annual study conducted by EBRI and Mathew Greenwald & Associates.

Of the workers surveyed, 49 percent said that their savings and investments totaled less than $25,000-not counting the value of their homes or future pensions. Worse yet, 61 percent of the workers said their savings and investments totaled less than $50,000.

Significantly, the pollsters reported, Americans' confidence in their ability to afford a comfortable retirement had dropped to its lowest level in seven years. Thus, it was no surprise to see that a sizeable number of these workers, too, said they had postponed retirement for financial reasons.

So, the grand irony seems to be this: After decades of working and waiting, millions of older boomers have reached retirement age only to find they are prevented from retiring by an array of social, economic and financial woes.

Talk about the gap between anticipation and realization! Yogi Berra understood that game perfectly.

The author was compensated for writing this article by AARP Financial.

While AARP endorses the services provided by AARP Financial Inc., AARP does not offer financial products or services itself and cannot recommend that you or any specific individual should purchase any particular product or service. AARP Financial Inc. is an investment adviser and a subsidiary of AARP.