After the pandemic triggered an unprecedented wave of older workers leaving the labor force prematurely, economists projected a surge in "unretirements." However, data from the Federal Reserve Bank of St Louis reveals that these predictions have been proven wrong. According to a model by the bank, there are currently almost two million more retirees than initially predicted, predominantly among individuals over 65 years old.
While the retirement gap had been narrowing earlier this year, the latest data suggests a widening trend once again. The number of retirees reached its peak at around 2.44 million in January, decreasing to roughly 1.67 million in June. However, the most recent Fed data for September indicates that the surplus of retirees has risen back up to approximately 1.98 million.
Miguel Faria e Castro, an economic policy adviser at the St. Louis Fed and the creator of the model, proposes that the ongoing lack of retired individuals returning to work may be contributing to the tight labor market and low unemployment rate. Despite the Federal Reserve's implementation of historically high interest rates of 5.25% to 5.5%, the highest in over two decades, the labor market has remained strong. In fact, the latest data from the US Bureau of Labor Statistics shows that the economy added 336,000 jobs in September, nearly double economists' expectations.
Faria e Castro's model utilizes labor conditions, demographic information, and Social Security benefits payment details to calculate the expected retirement rate under "normal conditions." Prior to the pandemic, the actual retirement rate largely aligned with the predicted rate from January 2000 until February 2020, when a significant divergence emerged.
The emergence of this retirement gap has sparked speculation about the anticipated wave of unretirements. Last month, investment management firm T. Rowe Price highlighted this in its 'Unretiring' report. The report revealed that around 20% of individuals who label themselves as retired actually continue to work either full-time or part-time, and an additional 7% are actively seeking employment.
Despite indications that this retirement gap was narrowing earlier this year, current data suggests that it has slightly expanded once again. With the Labor Force Participation Rate (LFPR) of those aged 65 and older, as calculated by the Bureau of Labor Statistics, still significantly below pre-pandemic levels, these numbers confirm that many older individuals are choosing to remain out of the labor force.