A historic inflation spike is easing, but there’s a powerful force that’s likely to keep wage and price increases higher than normal over the next few years: baby boomer retirements.
A record 4.1 million Americans are set to turn 65 this year and each year through 2027, according to the Alliance for Lifetime Income’s Retirement Income Institute. Although not all of those boomers will hang it up, the surge of freshly-minted 65-year-olds – known as “peak 65” – will likely mean record retirements as well.
How will baby boomers retiring affect the economy?
The deluge of retirees is expected to keep job openings elevated and force employers to raise pay to attract job candidates from a more slowly growing labor force. There were 8.1 million job vacancies in May, Labor Department figures show, down from a record 12.2 million in March 2022 but above the pre-pandemic average of about 7 million.
While openings are likely to continue to decline, they’ll probably stay above the pre-COVID level, says economist Michael Reid of RBC Capital Markets. That’s especially the case in industries with large shares of workers who are 55 and older, such as manufacturing, health care, government and education, Reid says.
“It’s really going to increase demand (for workers)” and add to wage hikes that companies typically pass on to consumers through higher prices, he says.
Do retirees spend less money as they age?
Julia Pollak, chief economist at ZipRecruiter agrees but says retirees typically have less income than they did during their working years. That, she says, may reduce their consumption and give companies less pricing power, at least partly offsetting the inflationary effect of their retirements.
How many Americans retire per year
Through the first five months of the year, there have been about 900,000 retirements in the U.S., a pace that Reid expects to yield a record 1.7 million to 2.1 million for the entire year. The figures are based on Social Security Administration data on the number of people claiming benefits for the first time.
By comparison, retirements averaged 1 million to 1.3 million from 2010 through 2019 before ramping up to about 1.6 million last year, RBC and Social Security figures show. Although the health crisis prompted many workers to retire early, nearly 500,000 people delayed retirement as COVID shrank their income or nest eggs, and there’s ample evidence suggesting retirement is becoming an unattainable luxury for some.
Still, many people who put off retirement during the pandemic are making the move now, further stoking the current wave.
How many people are added to the labor force every year?
Meanwhile, the arrival of new entrants into the workforce – mostly recent high school or college grads – isn’t keeping pace. In May, there were 2.8 retirees for each unemployed entrant, the most on record and a ratio that has steadily climbed from about 1 to 1 the past 15 years, according to RBC.
A big reason: Generation Z (age 12 to 27) is far smaller than the baby boomer cohort.
Here’s a look at the eight broad industries likely to be most affected by the retirement spike, followed by the three impacted least, according to Labor Department data analyzed by Reid and Pollak:
Wholesale trade
Share of workers 55 and older: 27.6%
The industry consists of middlemen and distributors that sell goods to other wholesalers or retailers. There aren’t many young workers because it requires relationships forged over many years and deep knowledge of specific products and markets, Pollak and Reid say.
There’s also little need for marketing, social media or dynamic customer service skills, the kinds of qualifications that would draw younger people, Pollak says.
Other services
Share of workers 55 and older: 27%
The diverse sector includes equipment repair and maintenance; religious, civic and professional organizations; and funeral services.
“A lot of those sectors skew much older,” Reid says.
Financial activities
Share of workers 55 and older: 26.3%
The staid investment banks, insurance companies and real estate firms that comprise this sector are populated by many older workers who tend to hunker down for long tenures, and fewer young people.
The insurance industry could lose about 400,000 employees to attrition through 2026, according the American Property Casualty Insurance Association.
“A lot of it is loyalty,” Jessica Hanna, the group’ senior vice president of Public affairs, says of the older employee base. “It’s a very stable industry.”
Insurance carriers are trying to appeal to Gen Z by emphasizing the growing use of data science to make risk assessments and market to customers, she says. The industry is also making pitches to young people on social media and launching apprenticeships.
Public administration
Share of workers 55 and older: 25.4%
Workers in these government jobs also tend to stay in their positions for many years, in part to qualify for pensions and other benefits, Reid says.
Manufacturing
Share of workers 55 and older: 25.3%
Following the heavy job losses inflicted by the offshoring of manufacturing to Asia and the Great Recession of 2007-09, U.S. factories have made a comeback in recent years as some production has returned to the U.S.
But many young people mistakenly perceive factory jobs as physically taxing and the industry as “dirty, dark and dangerous,” says Carolyn Lee, executive director of the Manufacturing Institute, which trains workers.
“They’re high-paying durable jobs” and most involve using digital skills to run computerized machines.
As baby boomers retire and manufacturers expand capacity, the industry estimates it could need to find 3.8 million new employees by 2033. Yet about half those positions could go unfilled, the Manufacturing Institute estimates.
Forty percent of the workforce at metalworking machinery plants and 50% at textile, fabric finishing and coating mills is 55 and older. The latter share is highest among all sectors.
Manufacturers are partnering with high schools and colleges to train young Americans. To appeal to Gen Z and Millennials, the industry is allowing flexible shifts and shift-swapping, Lee says, a departure from the decadeslong orthodoxy of eight-hour shifts.
Transportation and warehousing
Share of workers 55 and older: 24.3%
Trucking skews older in part because regulations bar license holders under 21 from moving interstate freight, says Sean McNally, a spokesman for the American Trucking Association.“The average age of a new driver being trained today is 35, meaning we are individuals’ second or third career,” McNally says.
Industry officials are lobbying Congress to change the rule and have launched image advertising campaigns to attract younger workers, he says.
Educational services
Share of workers 55 and older: 23.9%
Teaching has many unionized jobs that reward seniority and offer pensions, Pollak and Reid say, encouraging an older workforce.
Health care and social assistance
Share of workers 55 and older: 23.6%
A 2021 report by the American Journal of Nursing found 4 million nurses are expected to retire by 2030.
“The pandemic caused significant strain on the health care system, prompting increased burnout and early retirement among nurses,” says Claire Sabin, public affairs specialist for the American Nurses Association. “Younger nurses, facing limited professional development opportunities and difficult work environments, have been less likely to enter or stay in the profession during the pandemic.”
Here are the three industries with the fewest older workers:
Leisure and hospitality
Share of workers 55 and older: 15%
The industry – which includes restaurants, bars and hotels – requires physically taxing work and has high turnover. More than half of all workers are 35 or younger.
Information
Share of workers 55 and older: 20.5%
The sector, which includes technology jobs, attracts mostly younger workers.
Construction
Share of workers 55 and older: 21.2%
The field is physically demanding and workers retire at relatively young ages, leaving a smaller share of older employees, Reid says.
At the same time, construction has a disproportionate share of older employees in skilled jobs, such as carpenters and electricians, says Anirban Basu, chief economist of Associated Builders and Contractors, a trade group. It’s struggling to attract young people to those positions, which typically require training or apprenticeships.
“They can make money driving for Uber and Lyft” and they have “more flexibility and control over how they spend their time,” Basu says.
His group estimates the industry will need an additional 500,000 workers this year beyond normal turnover to offset retirements, additional construction spending and other factors.
