The number of persons in the United States over age 55 will grow substantially over the next two decades. Due to the aging of the baby boom generation, older persons are becoming an increasingly significant proportion of all persons and workers. In 2002, the U.S. Census Bureau estimates that there were 61 million people over age 55 and their numbers are projected to grow to 103 million in 2025. This growth will increase the percentage of the population that is over 55 from 22 percent to 30 percent. This shift in population age will affect the composition of the labor force. The number of older workers in the United States is projected to grow substantially over the next two decades, and they will become an increasingly significant proportion of all workers. In June of 2002, there were 19.2 million workers over age 55 and their numbers are projected to increase to 31.8 million by 2015. This growth is projected to increase the percentage of the workforce that is over 55 from 14 percent in 2002 to nearly 20 percent in 2015. The projected growth in the percentage of the labor force over 55 will occur among both men and women. This would shift an earlier trend among older men, whose labor force participation declined from the 1950s until the mid-1990s. Since the mid-1990s, labor force participation among older men has been relatively constant at 67 percent for men age 55 to 64 and 17 percent for men age 65 and older. The Bureau of Labor Statistics now projects these levels to rise to 69 percent and nearly 20 percent by 2015. The expected growth in labor force participation rates among older women would continue the current long-term trends of increases in their participation. For example, the percent of women age 55 to 64 in the labor force has steadily increased since the mid-1980s, from 42 to 52 percent in 2000, while rates among women 65 and older have grown from 7 to 9 percent in 2000. BLS projects these numbers to increase to 61 percent and 10 percent by 2015. There are many factors that influence a person’s decision to work at older ages. One key factor is financial incentives created by the rules regarding eligibility for benefits from the national pension system—Social Security in the United States. The decision to continue working is primarily related to the trade-off between earnings and leisure time. The availability of Social Security benefits allows workers to substitute non-labor income for their earnings and to enjoy more leisure. Depending on the eligibility rules and schedule of benefits, it can be more or less advantageous for workers to retire at an earlier age rather than to continue employment. The eligibility age for full Social Security benefits is currently 65 years and 8 months and rising, with reduced benefits available at age 62. If a person elects to start receiving benefits at age 62, 63, or 64, the total lifetime benefits they receive will be roughly equivalent. Even though delaying receipt of benefits for 1 year is on average “actuarially equivalent or neutral,” data from the mid-1990s show that most people (60 percent) elect to start benefits at age 62. These benefits can be reduced if the beneficiary has earnings above the income threshold when they are age 62-64. There are no earnings limitations on Social Security benefits above age 65. Another important retirement incentive is eligibility for employer-provided pension benefits. In the United States, about half of the labor force has some type of employer-provided pension coverage. Employer-provided pensions are customarily classified into two major categories: defined benefit and defined contribution plans. A defined benefit plan promises a retirement benefit amount that is usually expressed as an annual payment, derived from a formula based on a worker’s years of employment, earnings, or both. In the United States, benefits in defined benefit plans are insured by the Pension Benefit Guaranty Corporation (PBGC). Under a defined contribution plan, the retirement benefit is expressed as an account balance for the individual employee. This balance results from contributions that the employer, the worker, or both make, as well as from subsequent investment returns on the assets in the account. Under a defined contribution plan, retirement benefits are not guaranteed by the PBGC, and employees bear the risks of investment. As different types of pension plans, defined benefit and defined contribution plans provide workers with different incentives for either retiring or continuing work. Defined benefit plans often provide incentives for early retirement because they often do not increase retirement benefits in-line with additional years of work with the firm after the early retirement age. Under defined contribution plans, benefits can continue to increase, consistent with continued contributions and positive rates of return on assets. Since workers’ accounts increase in size proportional to the amounts that are contributed by them or by their employers, they do not create incentives to retire based on the benefit formula. In the past, a greater percentage of pension-plan participants were covered by defined benefit plans. In 1998, according to the Employee Benefits Research Institute, 20 percent of households had defined benefit coverage only; 57 percent had defined contribution coverage only; and 23 percent had both types of coverage. Health status and occupation are other important factors that influence the decision to work at older ages. As people age, they tend to encounter more health problems that make it more difficult to continue working. Thus, jobs that are physically demanding, usually found in the blue-collar and service sectors of the economy, can be difficult for many people to perform at older ages. Moreover, health status and occupation are often interrelated since health can be affected by work environment. Blue-collar and service workers, such as construction workers and janitors, often face physically demanding work environments that may affect their health status; these consequently lead to health impairments that affect their ability to work to older ages. Although this group continues to face problems, there is evidence that the health of older persons generally is improving. This suggests that, compared with previous generations, today’s older age population has an increased capacity to work to older ages. Although the Age Discrimination in Employment Act (ADEA) protects workers in the United States age 40 and older from employment discrimination, labor force participation is not solely an older worker’s decision, as there must also be a demand for their labor. Employers’ perceptions of older people may form barriers to older workers’ retaining their current jobs, finding new jobs if they are laid off, or re-entering the labor force after retiring if their retirement income is inadequate. For example, some employers believe that older workers have lower productivity than younger workers, generate higher costs for employee benefits such as health care and pensions, and represent higher costs for recruitment and training since they have less potential time to recoup these up front costs compared with a younger worker. Encountering these obstacles could discourage older workers and influence their decision to retire. The labor force decisions of older persons are also influenced by the availability of alternative employment arrangements. In the United States, there has been interest among older workers who wish to work longer in seeking employment arrangements that result in “phased retirement” or “bridge employment.” Phased retirement usually refers to staying with a career job on a part-time or part-year schedule while phasing out employment over a number of years to complete retirement. Bridge employment usually refers to leaving a career job and moving to part-time work with another firm in the same or different industry, prior to complete retirement. In the United States, nearly half of all workers age 55 to 65 utilize a bridge job before completely retiring. Older Americans receive income through a variety of sources, with the Social Security program constituting the largest share for most persons. In 2000, 90 percent of households with a person age 65 or older received Social Security benefits. These benefits constitute more than 50 percent of total income for 64 percent of these households. Social Security benefits, on average, replace about 40 percent of a program-covered individual’s pre-retirement income, if benefits are taken at age 62. Other major sources of income for older Americans are asset income (received by 59 percent of households), retirement benefits other than Social Security (41 percent), and earnings (22 percent). Social Security represents 41 percent of aggregate income, earnings represent 23 percent, retirement benefits other than Social Security are 18 percent, and asset income is 17.5 percent. In the United States, the Disability Insurance (DI) program provides compensation for the reduced earnings for individuals who have worked long enough and recently enough to become insured and have lost their ability to work because of a severe, long-term disability. DI provides benefits to persons who are not able to perform substantial gainful activity due to a physical or mental impairment. DI is not a major source of income for a significant portion of older persons in the United States. In 2000, 7 percent of the population age 50-59 received DI benefits. The recent and projected labor force participation and population aging trends for most other high-income nations will be less pronounced in the United States, but the aging of the population will nevertheless pose a challenge to retirement income programs. ILO data for 2000 show that the labor force participation rates for older U.S. workers, though not as high as in previous decades, will be higher than in most other high-income nations. It is expected that, because of higher fertility and immigration rates, the U.S. population will also age more slowly than other high- income nations. However, even though the population of the United States is not aging as rapidly as other countries, the old-age dependency ratio— the number of people over the age of 60 for every 100 working age people (ages 15-59)—is projected to rise from 19 in 2000 to 35 in 2050. This near doubling of the old-age dependency ratio will strain the resources of programs that pay for retirement. Even though the labor force participation of workers age 50 to 64 is expected to decline in most high-income nations, including the United States, between 2000 and 2010 (see fig.1), the United States has and will continue to have higher rates of labor force participation for older workers than most other high-income nations.