PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Retirement Age, the Labor Force and Entrepreneurship

By at 26 July, 2022, 6:45 am

SMALL BUSINESS INSIDER

Americans are retiring later in life and starting businesses at a healthy rate in their older years.

by Raymond J. Keating – 

Gallup just released a poll highlighting that Americans retire, and expect to retire at a later age today than in the recent past.

For example, in 1991, retirees reported that they had retired, on average, at age 57. That has increased to 61 years old in this latest survey. For good measure, nonretirees’ targeted retirement age has moved up from 60 years old in 1995 to 66 years old today.

Also, as noted in the following chart from Gallup, the percentage of individuals retired by age group has declined in recent years, most markedly among those under the age of 65.

This lines up with the labor force participation rate among those age 55 to 64, even after the initial onset of the pandemic. (See the following chart.)

Source: Federal Reserve Bank of St. Louis, FRED

In February 2020, the overall labor force participation rate registered 63.4 percent, and after the initial large decline with the pandemic onset, that climbed back to 62.2 percent as of June 2022. And for the prime working age group – those 25-54 years old – the labor force participation rate was 83.1 percent in February 2020 and 82.1 in June 2022. It turns out that the 55-64 age group has fared best during the pandemic economy, with a labor force participation rate of 65.1 percent in June 2022 versus 65.3 percent in February 2020, which amounts to no real, significant change.

A wide array of reasons and causes come into play with these trends. But one positive to be considered is entrepreneurship among older Americans.

Consider the rate of new entrepreneurs by age, courtesy of the Kauffman Foundation. In 2021, the highest rate was 0.44 percent for ages 45-54, followed by 0.43 percent for those 35-44, and then 0.37 percent for those ages 55-64, and 0.27 percent for 20-34 year olds. That the highest rates of new entrepreneurship occur in the 35-to-54 age range isn’t surprising, but it’s definitely worth noting that the rate of new entrepreneurship is markedly higher for those 55-64 compared to those 20-34.

For good measure, the U.S. Census Bureau presented the breakdown of business owners (employer firms) in a 2020 analysis. As noted in the following Census graphic, more than half of U.S. business owners were 55 or older.

Again, a host of factors are at work here. But we do know that Americans intend to work longer than they did in the recent past, and at least one option for many of those 55 and over is entrepreneurship. That’s a positive for those entrepreneurs and for the U.S. economy in general.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest book is The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist.

 

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