In the 21st century, older Americans are expected to make up a larger share of the U.S. population, live longer, and spend more years in retirement than previous generations. The share of the U.S. population age 65 and older is projected to increase from 12.4 percent in 2000 to 19.6 percent in 2030 and continue to grow through 2050. In part, this is due to increases in life expectancy. The average number of years that men who reach age 65 are expected to live is projected to increase from just over 13 in 1970 to 17 by 2020. Women have experienced a similar rise—from 17 years in 1970 to a projected 20 years by 2020. These increases in life expectancy have not, however, resulted in an increase in the average number of years people spend in the workforce. While life expectancy has increased, labor force participation rates of older Americans only began to increase in recent years. As a result, individuals are generally spending more years in retirement. In addition to these factors, fertility rates at about the replacement level are contributing to the elderly population’s increasing share in the total population and a slowing in the growth of the labor force. Also contributing to the slowing in the growth of the labor force is the leveling off of women’s labor force participation rate. While women’s share of the labor force increased dramatically between 1950 and 2000—from 30 percent to 47 percent—their share of the labor force is projected to remain at around 48 percent over the next 50 years. While hard to predict, the level of net immigration can also affect growth in the labor supply. Taking each of these factors into account Social Security’s trustees project that the annual growth rate in the labor force, about 1.2 percent in recent years, will fall to 0.3 percent by 2022. The aging of the baby boom generation, increased life expectancy, and fertility rates at about the replacement level are expected to significantly increase the elderly dependency ratio—the estimated number of people aged 65 and over in relation to the number of people aged 15 to 64 (fig. 1). In 1950, the ratio was 12.5 percent. It increased to 20 percent in 2000 and is projected to further increase to 33 percent by 2050. As a result, there will be relatively fewer younger workers to support a growing number of Social Security and Medicare beneficiaries. The age at which workers choose to retire has implications for these trends. If workers delay retirement, the ratio of workers to the elderly will decrease more slowly. The aging of the population also has potential implications for the nation’s economy. As labor force growth continues to slow as projected, there will be relatively fewer workers available to produce goods and services. In addition, the impending retirement of the baby boom generation may cause the net loss of many experienced workers and possibly create skill gaps in certain occupations. Without a major increase in productivity or higher than projected immigration, low labor force growth will lead to slower growth in the economy compared with growth over the last several decades and potentially slower growth of federal revenues. Social Security’s trustees project that real (inflation-adjusted) GDP growth will subside from 2.6 percent in 2007 to 2.0 percent in 2040, in part due to slower growth in the labor force. The prospect of slower economic growth is likely to accentuate the pressures on the federal budget from growing benefit claims and the shrinking proportion of workers to beneficiaries. Later retirement and increases in labor force participation by older workers could help diminish those pressures. Retirement has traditionally been thought of as a complete one-time withdrawal from the labor force. However, such transitions are no longer as common. A recent study found that only half of first-time retirees fully retired from the workforce and remained fully retired after 3 to 5 years. The other half chose to partially retire by reducing their work hours or taking bridge jobs—transitional jobs between career work and complete retirement—or they re-entered the labor force after initially retiring. According to our analysis of the HRS, about one in five workers who fully retire later re-enter the workforce on at least a part-time basis sometime over the next 10 years. There are various reasons behind these trends. In some cases, older workers need the income or benefits a job provides; in other cases, they wish to start a new career in a different field. With no universal definition of retirement, researchers use different definitions depending on their purpose. Since our focus is on labor force participation, we are using definitions of retirement that combine whether or not people say they are retired with measures of their labor force participation. Workers have generally been retiring at younger ages over the last several decades, but over more recent periods, retirement ages appear to have stabilized. This finding holds for a variety of definitions of retirement. Census Bureau data indicate that the average age at which workers left the labor force dropped from about 71 and 70 years for men and women respectively in 1960, to about age 65 for both men and women in 1990 (fig. 2). Since that time, retirement trends appear to have stabilized for men, with their retirement occurring on average between 64 and 65. The retirement age for women continued to decline. Similar trends appear in the age at which workers start drawing Social Security benefits. From 1960 to 1990, the average age of workers starting to draw Social Security benefits declined 3 years for men (from 66.8 to 63.7) and about 2 years for women (from 65.2 to 63.5). Since 1990, these averages have changed little. The averages were 63.7 years for men and 63.8 for women in 2005. In addition, in the 2007 Retirement Confidence Survey, workers responded on average that they planned to retire at age 65, up from age 62 in 1996. We, along with others, have suggested that increasing labor force participation for older workers could lessen problems for the economy and the Social Security and Medicare trust funds, and boost income security for retirees as well. Workers retire for a variety of reasons, some of which are under their control while others are not. Some personal reasons for retiring include workers’ job situation, their financial situation, and social norms regarding retirement. In addition, there are often factors outside of a person’s control that may lead to retirement. According to focus groups that we conducted in 2005 with workers and retirees, we found that health problems and layoffs were common reasons to retire and that few focus group members saw opportunities to gradually or partially retire. Workers also cited what they perceived as their own limited skills and employers’ age discrimination as barriers to continued employment. Similarly to our focus group results, the Employee Benefit Research Institute (EBRI) found that an estimated 37 percent of workers retire sooner than they had expected. Of those, the most often cited reasons were health problems or disability, changes at their company, such as downsizing or closure, or having to care for a spouse or another family member. The role federal policies play in influencing retirement behavior needs to be considered as well. Depending on workers’ circumstances, these policies can provide incentives to retire at certain ages, and send signals or set norms about when it is appropriate to retire. In addition, many employers have structured their own retirement benefits, such as pension eligibility ages, based on federal policies. Federal policies present a mix of retirement incentives, some of which encourage individuals to retire well before their Social Security full retirement age and others that promote staying in the workforce. (See fig. 3 below.) The effect of these incentives also varies substantially with personal circumstances. In general, the availability of Social Security benefits at age 62 offers an incentive to retire before full retirement age, though changes in program rules are progressively weakening that incentive. The recent elimination of the Social Security earnings test for those at full retirement age and beyond, which had formerly reduced benefits for those beneficiaries who had earnings above a certain threshold, also may discourage drawing benefits early. The fact that most individuals are eligible for Medicare at age 65 generally deters them from leaving the labor force before then, especially if they are not covered by retiree health insurance. Federal pension tax policies give employers discretion to set pension plan rules that provide incentives for many workers to retire somewhat earlier than the norms established by Social Security, often age 55, or in some cases earlier. However, these incentives to retire early apply to fewer workers, due to the diminished prevalence of DB plans. Several characteristics of the Social Security program—including eligibility ages and the earnings test—provide incentives to retire at different ages. The Social Security full retirement age, which has traditionally been age 65, is gradually rising to 67. However, workers can begin receiving reduced benefits at 62; benefits are progressively larger for each month workers postpone drawing them, up to age 70. In general, benefits are “actuarially neutral” to the Social Security program; that is, the reduction for starting benefits before full retirement age and the credit for starting after full retirement age are such that the total value of benefits received over one’s lifetime is approximately equivalent for the average individual. However, Social Security creates an incentive to start drawing early retirement benefits for those who are in poor health or otherwise expect to have a less than average lifespan. If a worker lives long enough—past a “break-even” age—he or she will receive more in life- long retired worker benefits by starting benefits at a later, rather than an earlier date. (See figure 4 below for examples of the kinds of considerations workers face in making a decision about when to begin drawing Social Security benefits.) The increase in full retirement age and the larger penalty for early retirement reduce the incentive to start drawing Social Security benefits and retiring early. Because the early retirement age has remained fixed at 62 while full retirement age is gradually rising to 67, workers taking early retirement benefits are progressively incurring bigger reductions. For example, workers who reached 62 in 1999 and started drawing benefits that year faced a reduction of 20 percent because their full retirement age was 65.