Knowing the average age at retirement for a given population provides important information for administering and analyzing public and private pension programs. The average age at exit from the labor force provides a reasonable indication of the age at which older workers retire. As such, it has provided a more precise measure of the trend in the average age at retirement in recent decades in the United States than, with the exception of the Social Security Administration’s time series, has been previously available.
Benefits of measuring the Retirement Age:
The cohort method of measuring the average age at exit from the labor force also provides a more accurate description of the trend in the average age at retirement for Women than did earlier studies, many of which relied on a crosssectional analysis of changes in elderly women’s labor force participation rates.
Constructing a time series of the average age at exit from the labor force permits one to see not only the direction of the trend in retirement age, but also the magnitude and pace of its change.
Doing so also enables one to estimate changes in the average duration of retirement. The ratio of the average number of years of work to the average duration of retirement has considerable relevance for financial planning in funded pension plans and systems, partly determining pension accumulation and disbursement.
In pay-as-you-go systems, the support ratio partly determines the balance between system receipts and expenditures, and the average age at exit from the labor force is a determinant of the support ratio. Thus, measuring the trend in the average age at exit from the labor force has considerable value for pension planning for individuals as well as organizations, public and private.
An important point that is not fully appreciated is that the retirement ages assumed in studies of retirement preparedness strongly affect their estimates of preparedness. Most studies estimate how financially well prepared households will be for retirement when their primary workers retire at a fixed age–typically 62 or 65. However, barring disabling injury or illness, workers can choose when to retire, just as they choose how much to save. The longer they work, all else being equal, the more prepared for retirement they are likely to be. Because most studies of retirement preparedness do not treat retirement age as a matter of choice, they tend to overstate the gravity of potential shortfalls in retirement assets.