Does Socioeconomic Status Lead People to Retire Too Soon?

onsdag, 24 august 2016

Working longer is a powerful lever to enhance retirement security. Individuals, on average, are healthier, live longer, and face less physically demanding jobs, so they should be able to extend the number of years worked. But averages are misleading when differences in health, job prospects, and life expectancy have widened between individuals with low and high socioeconomic status (SES). Thus, a single prescription for all no longer seems appropriate.

Rather, it is important to know: 1) how long individuals in different SES groups have to work to maintain their pre-retirement standard of living; 2) how long they plan to work; and 3) what explains any gap between the two.

This brief, based on an earlier paper, uses the Health and Retirement Study (HRS) to document the disparities across SES quartiles both in the ages at which households will meet their retirement income targets and in their planned retirement ages.1 It then uses regression analysis to determine the extent to which any gap between the target and planned ages is associated with SES, as opposed to demographic/financial characteristics or health, marital, wealth, or employment shocks that occur before the HRS interview but too late for the household to adjust its saving (between ages 50-58). The analysis uses education as the SES metric, because educational attainment is determined early in life and affects, but is unaffected by, the focus of this research – late-career labor market activity.