“How Do Non-Financial Factors Affect Retirement Decisions,” the latest Issue Brief from the Center for Retirement Research at Boston College (CRR), finds that a positive workplace experience is a critical component in the decision of workers ages 65 and over to remain in the labor force.
The CRR based its analysis on a long series of studies conducted by the Social Security Administration’s Retirement Research Consortium. These reports, CRR explains, “examine how two types of non-financial factors affect retirement decisions: the worker’s on-the-job experience and the allure of retirement activities.”
According to the issue brief, specific job characteristics that either incline workers to retire or to remain on the job have a real influence on a given individual’s retirement readiness picture. Retirement industry practitioners are probably already aware of this tendency, CRR notes, in that workers in traditionally blue-collar industries are generally expected to retire earlier (and save more aggressively). But even industry pros may not be aware of just how much subtle on-the-job factors, such as workplace culture, inter-employee relationships and the potential for an enjoyable life post-work, can skew one’s retirement readiness outlook and decisions.
In fact, CRR argues there is no shortage of evidence that so-called “non-financial” factors have a formative influence on one’s retirement outlook—even more than basic dollars-and-cents projections.
“If financial considerations drive retirement decisions, workers financially prepared for retirement would exit the labor force immediately and those not prepared would work longer,” the report explains. Looking at the data, this is clearly not what happens. “A study by Steven Haider and David Loughran, for example, shows 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 Haider-Loughran study finds that the individuals most likely to be working at these older ages are, in fact, those with the strongest finances—those with the most education, greatest wealth, and highest lifetime incomes.
“Such workers have higher labor force participation at all ages, as they have fewer health impairments and better employment opportunities,” CRR explains.
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Another interesting trend measured by CRR is that the objective quality of work offered to those over age 70 is not that great, especially when it comes to pay and other financial factors.
The CRR researchers point to data from the “AHEAD cohort from the Health and Retirement Study (HRS),” a biennial survey of a panel of older individuals. That study finds those still working past age 70 “earn significantly lower hourly wages than they had earlier in their careers.” This is yet more evidence, CRR argues, that non-financial factors such as workplace engagement and having a sense of purpose outside of work directly control one’s decision to retire.
Of course, no amount of workplace happiness can keep one working forever. In this sense it is also important to consider one’s career/industry in asking whether qualitative factors such as happiness will drive the retirement date. In other words, many who want to work later because they enjoy it simply will not be able to. (See "Retirement Planning Takes a Life Vision.")
The CRR brief goes on to assess the effect of a wide range of workplace characteristics on labor force transitions (based on worker statement data from the HRS), “from physical demands and stress levels to age discrimination and the enjoyment of work.” The HRS assessment was initially collected by asking respondents the extent to which they agree with statements such as “I really enjoy going to work” on a scale from 1 to 4, with 1 meaning “strongly disagree” and 4 meaning “strongly agree.”
According to the CRR there is clearly a “statistically significant relationships between a 1-unit increment on the response scale and the likelihood that a full-time worker remains in full-time employment, shifts to part-time employment, or retires over the two-year period between HRS interviews. As expected, jobs that require physical effort or good eyesight increase the likelihood of retirement.”
The CRR brief concludes that “non-financial benefits seem far more important than non-financial costs,” both in keeping some workers in the labor force and drawing others into retirement. The full findings are available for download here.
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