Older workers who lose jobs have reduced retirement benefits

Unemployment rates for workers over age 55 increased from 3.1 percent in December 2007 to 7.6 percent in February 2010, before decreasing to 6 percent in April 2012, according to the U.S. Government Accountability Office.

Older workers have fared better than younger workers since the recession because many have tenure at their jobs and are less likely to be laid off than their younger counterparts.

“While it is crucial that the nation help people of all ages return to work, long-term unemployment has particularly serious implications for older workers (age 55 and over). Job loss for older workers threatens not only their immediate financial security, but also their ability to support themselves during retirement,” said Charles A. Jeszeck, director of education, workforce and income security for the GAO in testimony before the U.S. Senate Special Committee on Aging on May 15.

Jeszeck based his testimony on government research and focus group interviews that showed that while older workers are less likely than younger workers to lose their jobs, it generally takes them longer to find new ones. The median length of unemployment has more than tripled for older workers since the recession started. Prior to the recession, the median duration of unemployment for job seekers age 55 and over was 10 weeks compared with nine weeks for job seekers aged 25 to 54.

By 2011, the median duration of unemployment for older job seekers increased to 35 weeks compared with 26 weeks for younger job seekers, according to the GAO. In 2007, less than a quarter of unemployed older workers were unemployed for longer than 27 weeks, but by 2011, that number had increased to 55 percent. Also, by 2011, more than one-third of all unemployed older workers had been unemployed for over a year.

Focus group participants told the GAO they believed employers’ reluctance to hire older workers was their primary reemployment challenge, and several cited job interview experiences that convinced them that age discrimination was limiting their ability to find a new job. Because of legal prohibitions against age discrimination, employers are unlikely to explicitly express a lack of interest in hiring older workers; however, one workforce professional told the GAO that local employers had asked her to screen out all applicants over the age of 40.

Job loss can result in fewer years of work over a worker’s lifetime, which can lower the worker’s retirement income. Fewer years of work can prevent a worker who is covered by a traditional defined benefit plan from having enough years of work with an employer to vest in employer-funded retirement benefits. And even if a worker who is covered by a traditional DB plan has enough years of work to earn a right to the benefits, fewer years of work can reduce a worker’s final retirement benefit if the number of years worked is used in the formula for calculating retirement benefits.

For workers with defined contribution plans, having fewer years of work can limit the amount of yearly employee and employer contributions that accumulate in a worker’s account. Moreover, Social Security retirement benefits may be reduced as a result of fewer years of work because the benefits are based, in part, on a calculation of the worker’s average monthly earnings over 35 years. The 35 years used for the calculation are those with the worker’s highest earnings, adjusted for changes in wage levels. If a worker has less than 35 years of earnings, then zeros would be used for earnings in the missing years, and this will result in a lower calculated benefit.

When older workers do find jobs, they earn much less than they did before they lost their jobs. The median earnings replacement rate for workers aged 55 to 64 who were displaced from 2007 to 2009 was only 85 percent, compared with about 95 percent for workers between the ages of 25 and 54 and more than 100 percent for workers ages 20 to 24.


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