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Minnesota's Retirement Reality

by Luke Greiner
April 2016

The Turning Point

For years economists and demographers have been predicting an incredible demographic shift in the labor force, both nationally and in Minnesota. Typically attention is drawn to the large generation dubbed "Baby Boomers" or simply "Boomers". This generation is defined as those born between mid-1946 and mid-1964, a longer-than-usual (18 years) period of elevated birthrates following World War II. While our country has experienced higher birth rates, the number of births was unprecedented. The oldest boomers became eligible for full social security retirement benefits (66 years) in 2012, signifying what many predicted as the beginnings of a mass exodus of labor from the workforce (see Table 1).

Table 1
Age for Full Retirement Benefit for Retired Workers
Year of Birth Full Retirement Age (FRA)
1937 and earlier 65
1938 65 and 2 months
1939 65 and 4 months
1940 65 and 6 months
1941 65 and 8 months
1942 65 and 10 months
1943–1954 66
1955 66 and 2 months
1956 66 and 4 months
1957 66 and 6 months
1958 66 and 8 months
1959 66 and 10 months
1960 and later 67
Source: Social Security Administration

So the question remains, has there been a mass exodus? Are the Baby Boomers retiring in droves as they reach full retirement age, or are they still embracing work? With help from ever increasing medical advances in technology and treatment, Minnesotans enjoy the second longest lifespan in the Union at 81.1 years. Hawaii has the longest expectancy of 81.3 years, and nationally Americans should expect to reach 78.9 years. It is also important to consider the difference between living longer and working longer since poor health conditions or financial state could decrease the number of years individuals are employed even though they live longer.

Many factors beyond turning a certain age affect a senior's ability and willingness to retire. Significant barriers such as a recession, a large medical bill, or lack of personal savings can prohibit a timely entry into the retirement years. Two other reasons that a worker might delay retiring are the emotional and physical satisfaction of self-worth that can be found working. If Baby Boomers began full time work on reaching 18, they likely worked almost 100,000 hours by the time they reach full retirement age. The connection and identification with work is engrained into the very core of many Baby Boomers, who simply refuse to stop being contributing members of the labor force.

Data from the U.S. Census Bureau and Quarterly Workforce Indicators clearly show that we have a larger number of older workers than before, and a previous article examines the industries that employ Minnesota's oldest workers in A Seismic Shift. A significant increase of jobs held by the oldest workers is not surprising since there are simply more of them than in the past relative to other generations.

The percentage of Minnesotans 55-64 years in the labor force has increased from 65.7 percent in 2000 to 71.4 percent by 2010 before dropping slightly to 71.3 percent in 2014. Both the number of the 55-64 year olds and the rate of their participation in the labor force, even if financially obligated, has allowed almost a half million Minnesotan workers on the fringe of retirement to remain employed. If participation rates for 55-64 years olds remained at 2000 levels (65.7 percent) Minnesota would have about 40,000 fewer workers in 2014 (see Figure 1). But it's not just those on the cusp of reaching full retirement age who are remaining in the labor force later in life.

Figure 1: Percentage and Number of 55-64 Year Old Minnesotans in the Labor Force

The share of residents 65 years or older participating in the labor force grew even more (23.8 percent) from 14.4 percent in 2000 to 17.3 percent in 2014. At just 2.6 percent in 2014, workers 65 and older also have the lowest incidence of unemployment compared to younger Minnesotans.

According to national data from the Bureau of Labor Statistics, although the proportion of population 65 years and older that was not in the labor force declined from 81.5 percent in 2004 to 77 percent in 2014, the rates have remained higher in Minnesota. In 2005 84 percent of Minnesotans 65 and older were not in the labor force, and by 2014 it was 82.7 percent, 5.7 points higher than the national rate.

At the U.S. level 13.8 percent of 55 to 64 year olds who were not in the labor force cited retirement as the main reason for not working in 2014, down from 15.8 percent in 2004. The percent of the total population 65 years and older not in the labor force because of retirement also decreased from 72.5 percent in 2004, to 68.1 percent in 2014. The next most common reasons cited for not working was being ill or disabled.

The Organization for Economic Cooperation and Development (OECD) provides data on average retirement ages and estimates that from 2004 to 2012 national average effective retirement age increased from 64.2 to 65 years. The long term trend of later retirement ages is certainly a factor in helping explain the increased share of 55- to- 64 year olds in Minnesota's labor force.

A commonly cited explanation for why older workers are delaying retirement or working through retirement is the effect the Great Recession had on savings. While the recession certainly caused many workers to retire later, it also caused some to retire earlier than expected. According to a 2013 GAO Federal Reserve study, 38 percent of people age 55-64 and 47 percent of people 65-74 who had not yet retired reported they delayed retirement since the recession, while 21 percent of people 55-64 and 13 percent of people 65-74 reported they had retired earlier than planned (see Figure 2).

Figure 2: great Recession's Effect on Retirement Decisions

Paid In Full

The Government Accountability Office produced a study last year highlighting the limited financial situation of many retirees and workers approaching retirement nationwide. The GAO found that about 29 percent of potential retirees age 55 and older have no retirement plan or defined benefit plan/pension. With personal savings inadequate to fund the Golden Years, "Social Security provides most of the income for about half of households age 65 and older". The Social Security program is incredibly important to many of Minnesota's older population and also the communities in which they live.

With about three in 10 workers 55 and older having no savings beyond their contributions to Social Security nationally, the Government Accountability Office (GAO) estimates that 48 percent households 55 and older will rely on Social Security for most of their retirement income. Even for those with savings, many saved too little since the 48 percent (55+ years) with some retirement savings have a median account value of $109,000, equivalent to an inflated protected annuity of $405 per month for a 65 year old. Older households (65-74 years) aren't in any better shape according to the 2015 GAO report with about 52 percent having no retirement savings.

Buying Power

According to DEED's Cost Of Living tool the minimum monthly cost to live in Minnesota for a single person age 51+ and without children is $2,521. Table 2 details the different major cost categories identified by DEED's Cost Of Living tool. However the cost of living figures include a transportation cost more applicable to someone driving to and from a full-time job. Although many retirees certainly have transportation costs, those costs would most likely be significantly less than the cost in Table 2. Health care is also a major factor that likely has a cost decrease for eligible individuals beginning at age 65 thanks to Medicare although supplemental insurance may be necessary, depending on individual circumstances. Removing the transportation costs from the minimum cost to live still requires a monthly income of $1,878.

Table 2
Minimum Cost to Live in Minnesota for Individual Age 51+ Without Children
Food $324
Health Care $153
Housing $701
Transportation $643
Other $321
Taxes $379
Total Monthly Cost $2,521
Sources: DEED, Cost of Living Tool

The average gross monthly Social Security retirement benefit in Minnesota was $1,367.40 for retired workers in December 2014, amounting to an annual benefit of $16,408.90 before taxes. Even as minimum living costs fluctuate depending on life events and circumstances, additional retirement income beyond Social Security helps bridge the gap to ensure basic needs are met.

County level data showing the percentage of retirement benefits largely follows the age profile of each county. With close to 29 percent of the total population 65 years or older, Aitkin County also has the largest share of residents receiving Social Security retirement benefits (27.8 percent), followed by Cook (24.2 percent), and Cass (23.4 percent). Not surprisingly Scott County, with the smallest number of 65 year and older residents in the state, has the lowest share of population receiving Social Security retirement benefits (8.6 percent). A quick glance at Figure 3 shows the pronounced difference between rural and urban centers. The metro- and micropolitan counties across the state have a younger population which translates into a much lower share of their overall population receiving Social Security retirement benefits.

If the national findings about low retirement savings from the Government Accountability Office are true in Minnesota, it's possible that counties with large percentages of their total population drawing Social Security benefits could face changing economic conditions both from losing a larger share of their labor force and from less purchasing power in their communities.

Figure 3: Minnesota map showing Share of Total Population Receiving Social Security Retirement Benefits, 2014

Social Security Retirement Benefit Statistics, December 2014
County Number of Residents Receiving Social Security Retirement Benefits Per Capita Social Security Retirement Benefits
Aitkin 4,435 $1,290
Anoka 37,555 $1,438
Becker 5,800 $1,223
Beltrami 5,875 $1,230
Benton 4,200 $1,268
Big Stone 1,055 $1,138
Blue Earth 7,395 $1,306
Brown 4,465 $1,259
Carlton 5,180 $1,292
Carver 8,705 $1,470
Cass 6,675 $1,274
Chippewa 2,010 $1,213
Chisago 6,705 $1,374
Clay 6,665 $1,283
Clearwater 1,545 $1,119
Cook 1,260 $1,311
Cottonwood 2,075 $1,229
Crow Wing 12,305 $1,311
Dakota 44,045 $1,466
Dodge 2,450 $1,285
Douglas 7,190 $1,262
Faribault 2,750 $1,200
Fillmore 3,680 $1,198
Freeborn 5,745 $1,282
Goodhue 7,530 $1,344
Grant 1,050 $1,215
Hennepin 127,445 $1,483
Houston 3,195 $1,261
Hubbard 4,510 $1,249
Isanti 5,015 $1,350
Itasca 8,650 $1,295
Jackson 1,705 $1,190
Kanabec 2,750 $1,220
Kandiyohi 6,265 $1,275
Kittson 805 $1,183
Koochiching 2,345 $1,310
Lac qui Parle 1,285 $1,170
Lake 2,095 $1,312
Lake of the Woods 875 $1,197
Le Sueur 4,135 $1,321
Lincoln 1,125 $1,116
Lyon 3,195 $1,263
Mahnomen 835 $1,099
Marshall 1,535 $1,171
Martin 3,840 $1,259
McLeod 5,655 $1,309
Meeker 3,645 $1,255
Mille Lacs 4,365 $1,251
Morrison 5,265 $1,166
Mower 6,155 $1,266
Murray 1,655 $1,189
Nicollet 4,090 $1,357
Nobles 2,825 $1,222
Norman 1,160 $1,151
Olmsted 18,420 $1,391
Otter Tail 11,500 $1,235
Pennington 1,965 $1,220
Pine 4,865 $1,244
Pipestone 1,570 $1,169
Polk 4,700 $1,215
Pope 2,120 $1,210
Ramsey 56,570 $1,441
Red Lake 660 $1,135
Redwood 2,535 $1,221
Renville 2,465 $1,239
Rice 7,850 $1,360
Rock 1,535 $1,235
Roseau 2,205 $1,205
Scott 11,610 $1,460
Sherburne 8,675 $1,397
Sibley 2,200 $1,229
St. Louis 30,600 $1,317
Stearns 18,060 $1,268
Steele 5,255 $1,326
Stevens 1,250 $1,227
Swift 1,685 $1,192
Todd 4,180 $1,174
Traverse 740 $1,192
Wabasha 3,740 $1,292
Wadena 2,500 $1,157
Waseca 2,730 $1,277
Washington 29,060 $1,473
Watonwan 1,685 $1,212
Wilkin 910 $1,222
Winona 6,880 $1,311
Wright 13,490 $1,380
Yellow Medicine 1,750 $1,196
Source: Social Security Administration

Data Tables from SSA:

Life expectancy from CDC:

by state

Boomer ages:

GAO plan to retire:

Why they aren't working:

How much is needed to retire:

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