The Retirement Departure

Dramatic Changes

The COVID-19 pandemic has made dramatic changes in older workers’ views on retirement leading to a departure of employees from the workplace. 

For instance, the pandemic has changed where we work, translating to time and money savings. In my view, commuting is unpaid work. A survey by Upwork found that those who commuted before the pandemic and now work remotely saved an average of 49.6 minutes per day. This number equates to almost seven days per week. The direct cost savings on just gas alone was estimated at $183 million per day. However, it does not include savings on maintenance and repairs, life and property for fewer accidents, etc., which would make the savings even higher.

The Retirement Departure

The retirement and departure of older workers from the workforce is well documented. According to the Pew Research Center, the pace of Baby Boomers leaving the workforce has accelerated due to the pandemic. Baby Boomers are people born between 1946 and 1964, meaning they are between the ages of 52 and 76. This age range is when most people retire in the US. In most years, Baby Boomers retire at a rate of about 2.0 to 2.5 million persons per year. However, this number surged in 2020 to 3.2 million persons per year and has been elevated since then.

Source: Pew Research Center

What is the driving force for departure of employees from the workforce and taking early retirement? This fact is certainly not due to a lack of jobs. According to the Bureau of Labor Statistics (BLS), job openings were about 11 million at the end of 2021, nearly a record high. Furthermore, the unemployment rate is at 4.0%. The US economy is growing the fastest in four decades with a 5.7% growth rate. Anyone in the US who wants a job can get one.

There are; however, four reasons driving the departure of workers, especially older workers, into early retirement: health problems, changing priorities, job dissatisfaction, and improved finances and retirement accounts.

Health Problems

Older workers were more affected by the COVID-19 pandemic than younger workers. The CDC data clearly shows this to be true. Using the 18 – 29 years age bracket as a reference group, those 50 to 64 years old are 4X more likely to be hospitalized and 25X more likely to die from COVID-19. The rate goes up from there, as seen in the table below. If you are 85+, you are ten times more likely to be hospitalized and 340 times more likely to die. This difference in rate has probably led to a more significant impact on Baby Boomers resulting in departures from the workforce and early retirement.

Source: CDC

In addition, older workers have more chronic health conditions. Chronic conditions are diseases like diabetes, cardiovascular disease, chronic obstructive pulmonary disease, asthma, cancer, or arthritis.

In the 55 to 64 years age group, 69.5% have 1+ chronic conditions, 37.1% have 2+ chronic conditions, and 14.4% have 3+ chronic conditions. However, in the 65 years and over age group, 85.6% have 1+ chronic conditions, 56.0% have 2+ chronic conditions, and 23.1% have 3+ chronic conditions.

Hence, if you have health issues and are in good financial condition, retiring early and departing the workforce may make sense.

Changing Priorities

The second reason is the pandemic caused many Baby Boomers to change their priorities. A recent survey found about 63% of Baby Boomers are dissatisfied with their work-life balance. Once a person or couple is financially stable, they may ask themselves, why work longer? Instead, it makes sense to enjoy the fruits of your decades-long labor and spend time with family.

Baby Boomers may have changed their priorities during the pandemic. First, they may now have grandchildren and want to move closer to spend time with them. Second, they may just be tired of the stress and pressure of work and want a change of pace. Third, they may want to move someplace warmer. Lastly, they may want to spend their hard-earned money and travel and see the world before health issues make this more difficult.

Job Dissatisfaction

Many older workers may be dissatisfied with their jobs or just plain burned out. If your job is to stock shelves and you are doing that every day, at some point, it is sure to become unfulfilling. The same applies to a repetitive desk job. A worker spending 40+ hours per week in an unfulfilling and monotonous job will be dissatisfied. Forty working hours per week is approximately 24% of your time in a week, and this number does not include unpaid work like commuting and time at home on your computer.

There are other considerations as well. The workplace is often full of bureaucracy, office politics, and the threat of being replaced by technology or a younger worker. How many workers have trained their replacement?

Some people are just plain dissatisfied with their pay. Only 30% of Baby Boomers are satisfied with their pay, implying that 70% are not to varying degrees. However, pay is only the number two consideration for Baby Boomers. The number one priority is a sense of purpose, which many jobs lack.

Improved Finances and Retirement Accounts

Ultimately, Baby Boomers are retiring early and departing the workforce because their finances have improved. The COVID-19 pandemic resulted in higher savings rates, the highest in years. The main reason was hybrid work with less commuting and limited spending options. For instance, restaurants were closed, travel was restricted, sporting venues closed, etc.

Next, the US Federal Government pumped trillions of stimulus dollars into the economy. At the onset of the pandemic, the drop in economic productivity was fast and severe, but the pandemic recovery was almost equally as fast because of the stimulus. 

The recovery was fueled by the $2.2 trillion CARES Act in 2020, the $1.9 trillion American Rescue Plan Act in 2021, and the $1 Trillion Infrastructure Investment and Jobs Act in 2021. All this government spending in 2021 put money in the hands of businesses and consumers. Some Americans spent the money, but many saved, reduced debt, or invested it.

In addition to federal stimulus, the US Federal Reserve has held interest rates low for years. This fact has caused home prices to increase. During the sub-prime mortgage crisis, the lowest median home price in 2009 was $208,400. The growth since then has been phenomenal. The median home price was almost double at the end of 2021 at $408,100. Hence, Baby Boomers now have a significant amount of equity in their homes.

Next, Baby Boomers’ retirement porfolios are flush with cash after a decade-long bull market and excellent returns in the past three years. One of the better sources of information about 401(k) plans is Fidelity. The firm is one of the largest managers of retirement plans. Reportedly, the number of 401(k) millionaires is up to 442,000, and the number of IRA millionaires is up to 376,1000 at the end of 2021. Furthermore, the average 401(k) account balance is $130,700, a record high.

Final Thoughts on the Retirement Departure

The bottom line is Baby Boomers and older workers, in general, are doing well financially. They may be in a position where there are confident their retirement savings will not run out. Furthermore, they have decided work is no longer worthwhile, their priorities may have changed, and health issues may be more pressing. The best retirement age may be 65 for the Baby Boomers and older workers, but the above combination has made many people depart the workforce and retire early.