Could Nonfinancial Factors Put Retirements at Risk?

Financial factors can certainly influence retirement decisions, but what role, if any, do nonfinancial considerations play?

A paper summarizing the work of other researchers published by the Center for Retirement Research at Boston College notes that if financial considerations drove retirement decisions, workers financially prepared for retirement would exit the labor force and those not prepared would work longer. However, it cites a study by Steven Haider and David Loughran showing that this is not the case for those who remain in the labor force past age 65.

Using data from the Census Bureau’s Current Population Survey (CPS), the study finds that the individuals most likely to be working at these older ages are those with the strongest finances — those with the most education, greatest wealth and highest lifetime incomes. While the researchers note that such workers have higher labor force participation at all ages (beneficiaries of fewer health impairments and better employment opportunities), they note that the gap by education widens dramatically at older ages.

The study finds that those still working past age 70 earn significantly lower hourly wages than they had earlier in their careers and are much more likely to work part-time. It also finds that health shocks often lead to labor force exits after age 70, while financial factors, such as wages and wealth, have little or no effect. The study characterizes their continued employment as more akin to “play” than “work.”

Nonfinancial Factors

The report then turns to a study by Marco Angrisani, Michael Hurd, Erik Meijer, Andrew Parker and Susann Rohwedder which considers the importance of a broad range of nonfinancial workplace characteristics on labor force transitions at older ages, specifically ages 51-79. The study notes that most of these “transitions” occur prior to age 65, but that for those over age 70, retirement behavior is more responsive to financial factors. Echoing the results of the foregoing study, it finds that full-time workers with greater wealth and higher incomes are more likely to retire, while those who are less prepared are more likely to remain in the labor force. Like Haider and Loughran, the study finds that educated workers, all else equal, are more likely to remain in full-time employment and less likely to retire. Health does play a role: The study finds self-reported “fair” or “poor” health increases the likelihood of retirement by 6.3 percentage points.

The study notes that not liking work accounts for less than 10% of the “very important reasons” cited in the most recent 2012 HRS survey, except for respondents ages 68-70. Poor health accounts for less than 30%, except for respondents younger than 62 or older than 70. Far more prevalent than these factors pushing workers out of the labor force are factors pulling them into retirement — a desire to “do other things” or “spend more time with family,” a factor found to be especially strong during the popular retirement ages of 62-67.

‘Some’ Totals

Finally, the CRR summary cites a study by Ruby Brougham and David Walsh that not only supports the importance of nonfinancial rewards in pulling workers into retirement, but also supports the Haider and Loughran finding that nonfinancial rewards keep some workers in the labor force longer.

The report concludes that nonfinancial factors play an important role in work-and-retirement decisions, but that — to state the obvious — it is important that they also understand and carefully weigh the financial implications in deciding when to exit the labor force. However, it notes that few workers are equipped “even to estimate the financial implications” — an inability that the report says raises the prospect of many workers being pulled, or perhaps encouraged, out of the labor force too early to gain a financially secure retirement.

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