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Leadership Wanted-for a Sustainable Retirement

Leadership Wanted for a Sustainable Retirement

by Robert W. Tull | February 29, 2024 | Retirement Planning

Recently I listened to an interview with Fred Smith, the highly respected founder and executive chairman of FedEx Corporation. He shared how over the next months or years policy changes need to be made when it comes to government spending and debt. Federal spending has risen dramatically to where almost $2 trillion was borrowed last year. This results in more spending on interest than the Defense Department! I was fully aware of the debt build-up that has occurred over the past ten years, which must be addressed. What got the most of my attention was the significant decrease that has occurred in the labor participation rate in America.

In the landscape of economics and labor, the participation rate of primary workers holds significant importance. It serves as a crucial indicator of the health of the labor market and provides insights into the dynamics of workforce engagement. Understanding the trends and implications of the U.S. participation rate of primary workers offers valuable insights into the economy’s functioning and the well-being of its workforce.

What is the Participation Rate?

The participation rate refers to the proportion of the working-age population that is either employed or actively seeking employment. It excludes those who are not participating in the labor force, such as retirees, students, and individuals who are not looking for work. The primary workers subset within this rate comprises individuals who are engaged in the workforce as their main source of income, excluding secondary earners such as part-time workers, freelancers, or those with multiple jobs.

Over the years, the U.S. participation rate of primary workers has witnessed fluctuations influenced by various economic, social, and demographic factors. Understanding these trends provides valuable insights into the evolving nature of the labor market and the investment world. Demographic factors such as aging populations and changing societal norms can influence the participation rate. The aging population, with a large cohort of Baby Boomers reaching retirement age, has contributed to a decline in the overall participation rate in recent years.

I wrote an article in April 2022 about The Great Resignation that had been occurring due to COVID. It was Dr. Anthony Klotz, an associate professor of organizational behavior at UCL School of Management, who was credited with coining the phenomenon the “Great Resignation.” Dr. Klotz was quoted in an interview saying, “During the pandemic, we really had the time and the motivation to sit back and say, ‘Do I like the trajectory of my life? Am I pursuing a life that brings me well-being?’”

Most economists understand that during a major economic downturn (like COVID) or a recession, the job participation rate will likely decline. It is unclear how that rate is still declining given the many individuals who are leaving the labor force and how they are financially sustaining their exit.

In the Bret Baier interview, Mr. Smith believes government policies such as retirement benefits, healthcare provisions, and labor market regulations, have had a large effect on the declining participation rate. It was shared that in 1976, the Federal Reserve reported that 5.8% of prime-age workers (those between the ages of 25 to 54) were not in the work force. Today, that number stands at 11.4%, which equates to seven million men currently not participating in the work force. As Mr. Smith goes on to say, we are printing money at record rates, which is stepping on the economic gas, while at the same time pressing down on the brakes as prime-age workers are leaving the workforce. This phenomenon may result in the U.S. becoming a social democracy like France, Italy, and Greece. When it comes to retirees, this does not generally work out well. For example, the Greek pension system has been costly, complex, and distortive, contributing to Greece’s fiscal problems and discouraged labor force participation. Several attempts to reform the system have faltered due to lack of implementation, pushback by vested interests, and court rulings.

How does this information relate to me?

All of this means that the participation rate of primary workers carries several implications and challenges for policymakers, businesses, and society as a whole. It can hinder the normal development of working in your prime years and then transitioning to retirement as you become older. Now is the time for our leaders to step up and join together to develop solutions that will slow the process of a declining workforce of prime-age individuals. This in turn could allow you to transition into retirement at your desired age in order to experience the retirement you have worked so hard to achieve. This will only be accomplished by a return to policies that will promote growth in corporate America and reduce government spending. When that happens, the prime worker participation rate will likely return again to a sustainable level. Working together and understanding these trends and their implications, policymakers, businesses, and society can better navigate the challenges and opportunities presented by an ever-changing labor market landscape.

As you transition from the workforce into your next adventure, we encourage you to consult a certified retirement financial planner like Tull Financial Group to help you successfully navigate your financial journey. Please feel free to call us at 888.296.7526 to speak with our skilled and friendly retirement planning team today.