Does a Trend toward Early Retirement Create Problems for the Economy?

by Gary Burtless and Alicia H. Munnell
November/December1990

Many politicians, gerontologists, and editorial writers have come to deplore the trend toward early retirement. This trend, which began after World War II and accelerated in the 1960s and 1970s, has led to a dramatic decline in work effort and earnings among the elderly. Opponents of early retirement believe that keeping people in the work force longer will raise the nation’s output, reduce the costs of Social Security, and improve the well-being of older Americans.

This article takes a closer look at the economic arguments behind the widespread call for continued employment of older workers, particularly in view of the substantial aging of the population. The conclusion that emerges from the analysis is straightforward. Once social insurance costs are insulated from individual retirement decisions and individuals and their employers make their own provisions for support before the official Social Security retirement age, no strong economic reason exists to resist the trend toward early retirement, if that trend reflects the preference of the retiring individuals for more leisure and fewer goods.

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