Deciding what to do next after a job separation is an unenviable task many individuals are faced with at some point, and when it comes to those of more advanced years one of the primary options is often to retire. A study at Boston College examined the conditions that lead individuals aged 50-70 to decide to retire or not following a job separation. A number of factors were found to increase the likelihood of retirement, particularly having high net worth, having an accessible pension plan, and being eligible for Social Security retirement benefits.
Key Topics: Retirement; Pension; Benefits; Social Security
Title of Reviewed Article: How Do Financial Resources Affect the Timing of Retirement after a Job Separation?
Researchers: Matthew S. Rutledge (Boston College).
Publication: Industrial & Labor Relations Review, 2016, Vol. 69 No. 5, pp. 1249–1279.
Setting the Scene
The recent recession in the US in the late 2000s saw unemployment rates rise significantly. Previous recessions had often been marked by these job losses hitting younger and lower paid workers primarily, and while these groups were significantly impacted during the last recession, older workers were exposed to job loss to a greater extent than before (Munnell & Rutledge, 2013), with the unemployment rate in the US for those over 50 reaching a record 7.6% in 2010. Faced with unemployment, many of these older (50+) workers retired, while others continued to search for a new job (Rothstein, 2011).
Unsurprisingly, prior research indicates that individuals are more likely to permanently leave the workforce following job separation than while in employment (Chan & Stevens, 2004; Stevens & Chan, 2001; Konstantinos, 2010), with older workers seemingly more likely to be discouraged by the prospect of a difficult job search (Coile & Levine, 2011; Munnell et al., 2008). Although research indicates that it is not only the prospective difficulty of the job search that is a factor in older workers’ decision to retire, and that other factors such as those relating to their wealth (Gustman & Steinmeier, 2005); pension coverage type (Friedberg & Webb, 2005); and health (Dwyer & Mitchell, 1999), may play a part.
This study examined factors that impacted on an individual’s decision to retire or not following unemployment, with the researcher reviewing factors such as financial assets, pension coverage, labor market prospects, and the availability of social insurance benefits.
How the research was conducted
Data from the US Survey of Income and Program Participation (SIPP) was used for this study. This source interviews individuals from a panel of households every four months over a 2-4-year period. The survey collects information on a breadth of topics including labor force status, job characteristics, earnings, job search activity, benefits and pension coverage, and health status.
The sample taken for this study included individuals from the 1990 to 2008 SIPP panels (which covered the period 1990–2012) who involuntarily left a job when aged 50-70. This sample consisted of approximately 30,000 individuals. The decision to exit the labor force was examined for these individuals, with the focus primarily on those who retire only after a period of searching for a job.
Using this data, the researcher develops a comprehensive model to test the research question.
Key Research Findings
10% of those aged 50-54 retired after job separation, while 59% found a new job, and 15% of those aged 55-61 retired, with 48% of that group finding a new job.
As net worth increases, the choice to retire becomes more common, with these two factors found to be highly correlated.
When retirement related Social Security was available, 20-24% of individuals ended their jobless spell by retiring. Being eligible for such benefits increased the probability of retirement by approximately 50%.
Job separation was found to be more likely to end in retirement when individuals had an available DC or DB pension. For individuals who have a DB pension plan available after job loss, the likelihood of retirement almost doubles. Availability of a DC pension on the other hand leads to a much smaller increase in retirement likelihood.
Unmarried individuals were found to wait longer to retire than those who were supported by a working spouse or who had a spouse who was no longer working, while those who reported poor health were more likely to retire following job separation.
Generally, these results were consistent across the periods accessed by the researchers.
The results indicate that when job separations do not result in immediate retirement, approximately two-thirds find a new job, while the rest retire. Exit from the labour market and retirement appears to be encouraged by the availability of personal resources such as high net worth, social security retirement benefits, and income from defined benefit pensions.
For those whose job separation ended in retirement, the majority were within a year, suggesting that older individuals have limited tolerance for a job search, and where they have the financial means to do so they will typically exit the labour market and utilize those resources.
Interestingly, the results were found to be broadly consistent across the period of the study. Given that there was a recession in the US during this time (2007-2009), at which point unemployment rates were higher and new jobs would have theoretically been more difficult to find, but despite this, retirement was not more likely during this period indicating that the resources available to individuals are more important in their decision making that the unemployment rate.
Organizational and Reward Implications
The behaviours and trends highlighted by this study serve a number of valuable purposes. Typically, companies implementing job separations will offer support to those employees being separated, including training to prepare leavers for their next step. Particularly for older workers being separated, this study provides important insight into options available following job separation, as well as information on resources that are important in deciding leave or stay in the labour market, which could be utilised in such training.
The results should provide food for thought for regulators and policy makers in the area of unemployment and retirement. This study illustrates the close relationship between these factors, and the extent to which the availability of pension resources factors into early retirement decisions following job separations, which in turn has important implications for the labour market.
This study sheds an important spotlight on the relationship between timing of retirement and the resources available to individuals that factor into that decision. As results of this study are generalizable primarily to late career unemployment, future research would benefit from the examination of other age groups who are job separated.
Source Article: Rutledge, M. S. (2016). How Do Financial Resources Affect the Timing of Retirement after a Job Separation? Industrial & Labor Relations Review, 69(5), 1249-1279.
Published by: Sage Publishing
For further details and access to the full journal article Click Here (subscription or payment may be required).
Chan, S., & Stevens, A. H. (2004). How does job loss affect the timing of retirement? B.E. Journal of Economic Analysis and Policy, 3(1), 1187-1187.
Coile, C. C., & Levine, P. B. (2011). The market crash and mass layoffs: How the current economic crisis may affect retirement. B.E. Journal of Economic Analysis and Policy, 11(1), 22.
Dwyer, D. S., & Mitchell, O. S. (1999). Health problems as determinants of retirement: Are self-rated measures endogenous? Journal of Health Economics, 18(2), 173–93.
Friedberg, L., & Webb, A. (2005). Retirement and the evolution of pension structure. Journal of Human Resources, 40(2), 281–308.
Gustman, A. L., & Steinmeier, T. L. (2005). The Social Security early entitlement age in a structural model of retirement and wealth. Journal of Public Economics, 89(2–3), 441–63.
Munnell, A. H., & Rutledge, M. S. (2013). The effects of the Great Recession on the retirement security of older workers. Annals of the American Academy of Political and Social Science, 650(1): 124–42.
Munnell, A. H., Soto, M., Triest, R., & Zhivan, N. (2008). How much do state economics and other characteristics affect labor force participation of older workers? Working Paper 2008-12. Chestnut Hill, MA: Center for Retirement Research at Boston College.
Rothstein, J. (2011). Unemployment Insurance and job search in the Great Recession. Brookings Papers on Economic Activity, Fall, 143–213.
Stevens, A. H., & Chan, S. (2001). Job loss and employment patterns of older workers. Journal of Labor Economics, 19(2), 484–521.
Konstantinos, T. (2010). Job displacement and the transitions to re-employment and early retirement for non-employed older workers. European Economic Review, 54(4), 517–35.
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