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Working Longer: Still the Best Path to a Better Retirement

Philip Moeller

Today, of course, employers are in the driver's seat when it comes to finding a job. Millions of people have been out of work for a long period of time. For older workers in particular, it's especially tough to find a new job. There will come a day, however, when the equation shifts. As this happens, employers will find older employees grateful for the chance to work. Seniors who find themselves in demand will also be looking for different types of job opportunities, including seasonal, "on-again-off-again" jobs and those that offer telecommuting and flexible hours.

What won't change is the widespread thinking that working past the traditional retirement age is not a choice but a necessity. If anything, the trend will become stronger, due to the slowness of the recovery and the growing prospect for deficit cuts that include a haircut for senior government benefits.

"Delaying retirement is often viewed as the surest route to financial security in old age," according to the Urban Institute, a Washington think tank. "By working longer and earning more, older workers can accumulate additional Social Security, boost savings, and shrink the period their retirement savings must fund. Employment at older ages also expands the nation's labor pool, accelerating productivity, increasing national income, and raising living standards for both workers and retirees."

[Read: The Impact of Baby Boomers Working Past 65.]

A report on retirement trends by the TIAA-CREF Institute includes a dramatic example of how continuing to work can help people defer taking Social Security and thus raise their benefits. "A median-income couple, needing approximately $47,000 (all in 2004 dollars) in annual after-tax income, has a gap of about $27,000 if Social Security is claimed at age 62, $19,000 at age 66 and less than $9,000 if claimed at age 70," the report calculated. "The assets needed at age 62 to fill these income gaps at retirement drop from over $500,000 (for retirement at age 62) to less than $250,000 (for retirement at age 66) to only about $50,000 (for retirement at age 70)."

Older workers are not all in the same boat. Some with jobs have simply continued to work throughout the recession and recovery to date, helping to drive up their share of the employed population to record highs. According to an Institute research project and other groups, employees age 50 and older have been able to hang onto their jobs better than younger workers, often because they have more job seniority and experience.

Workers older than 50 who have lost their jobs have followed other paths. Many who have not been able to find work again decided to take Social Security as soon as they could, at age 62. This has provided them current income but is likely to worsen their long-term retirement prospects. That's because Social Security benefits rise by about 8 percent annually for each year benefits are deferred from ages 62 to 70. And older job seekers who have found new jobs have often taken big pay cuts.

Accepting a big pay cut, of course, is preferable to not finding work. And that's been the fate of many seniors. "Older workers are less likely to be laid off than younger workers, but when they do lose their jobs, they find it much more difficult to find work," says Richard Johnson, an Institute expert on senior issues.

The Sloan Center on Aging & Work at Boston College, another think tank, has analyzed the ways unemployed workers of all ages have tried to find new jobs. It did not report correlations between specific job-finding methods and success in finding new jobs. But the study identified differences between the job-search tools used by older and younger job seekers.

[Read: Second Acts: Turning Your Passion Into a Paycheck.]

Older people tended to rely more on newspaper classified ads than younger people, who were more likely to use social networking tools to find new work. Both groups showed similar tendencies in using the Internet, word of mouth, contacts with friends and family, the use of online job boards, and attendance at job fairs.

The biggest difference, the center found, is that younger job seekers were much more likely to go back to school and pick up both job-hunting tips and also enhance their job skills. Nearly 40 percent of people younger than 55 did one of these two things, it reported, while only 25 percent of those older than 55 did so. Also, older people were less likely to tap their former employers to find a new job.

"Many older workers said they felt personally hurt and even betrayed by their former employer, especially if they worked in their previous job for a long time," the Sloan study said. "This may account for why fewer older workers are using prior employers as a resource for job hunting than younger workers report doing. The propensity to rely on newspapers ads and company job boards, as opposed to social networking sites, may also contribute to a sense of isolation and leave older workers disconnected from the workforce."

The difficulty that older job seekers have had in finding new positions raises questions about employer attitudes toward employing or reemploying older persons. After making it so difficult on older job applicants, how will employers cope if tight labor markets reappear and they must seek older employees? Such a scenario is, in fact, widely forecast.

According to Sloan, workers 55 and older comprised 19 percent of the American workforce in 2009, up from 12 percent in 1999. Looking to 2019, they would total 25 percent of the workforce if past trends continue. The Urban Institute takes a slightly younger cut and says workers 50 years and older will account for 35 percent of the labor force by 2019.

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As the economy improves and labor market tightens, lots of older employees will be receiving pensions and Social Security but will still have an income gap they would like to close with employment earnings. Such "partial" or "soft" retirement-job needs will be common. Seniors in this situation will not want or value 40-hour workweeks and lots of job stress. They will, however, be seeking flexible working hours and locations, and could represent the emergence of a new kind of "piece rate" workforce.

Right now, employers don't have the need and are unlikely to accommodate such demands. But as the labor market tightens, seniors will have more clout in gaining the types of jobs that work for their financial and lifestyle preferences.

To reach such a future, most labor market experts say the government and private employers will need to develop more effective and larger-scale training programs for older people. Social Security's early retirement benefits may also need to be reexamined.

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