Forced Retirement: What It Is and How It Works

What Is Forced Retirement?

Forced retirement is the involuntary job termination of an older worker. Generally, an older worker may lose a job as part of a wider company downsizing. People can also be pushed into retiring early due to poor health or disability.

Mandatory retirement due to age is prohibited by U.S. law in most cases. However, in the real world, the statistics show a different story. A December 2018 study by ProPublica and the Urban Institute concluded that over half (56%) of workers over the age of 50 have been pushed out of jobs before they would have retired willingly. The study also found that only one in 10 got another job that pays as well.

Understanding Forced Retirement

When most people consider retirement, they assume that they will be able to choose when they leave their jobs, usually when they have reached a certain age and have accumulated enough savings to live comfortably. With life spans growing longer, many imagine starting a new phase of their lives. Being forced to retire removes the element of choice.

Is Forced Retirement Legal?

Mandatory retirement at a set age was abolished in 1986 by an amendment to the federal Age Discrimination in Employment Act (ADEA). There are some exceptions for occupations that have high physical fitness requirements, such as military personnel and airline pilots.

The real world is murkier, though, especially as older employees tend to be better-paid employees. Companies that want to downsize without layoffs sometimes offer their most senior employees an early retirement package.

Older employees caught in a round of job cuts may get additional benefits in their severance packages, such as continuing health insurance coverage. In the corporate world, companies sometimes offer older workers attractive incentives to accept early retirement.

Forced Retirement Realities

Americans can choose to begin receiving Social Security benefits at age 62, although full benefits are paid only to those who wait until they reach anywhere from age 66 to 67 (depending on birth year) to begin collecting. So, it’s interesting that—according to statistics from the Center for Retirement Research at Boston College—the average retirement age in the United States is 65 for men and 63 for women.

However, there’s also data suggesting that people are staying in the workforce longer. The Pew Research Center said 66.9% of 65- to 74-year-olds were retired in the third quarter of 2021, meaning that about one-third of this age group still considered themselves part of the labor force.

Meanwhile, the U.S. Bureau of Labor Statistics (BLS) expects working in later life to become increasingly common. According to its estimates, nearly 40% of 65- to 69-year-olds will be in the labor force by 2030, up from 33% in 2020. The BLS also predicted that 11.7% of people age 75 and older will be working by 2030, up from 8.9% in 2020.

The Bottom Line

The American Society of Actuaries advises workers who are being forced to retire to consult a lawyer before signing any documents or waivers offered by their employers. The conditions may be negotiable. For example, the employer may agree to cover health insurance costs if the employee has not reached the Medicare-eligible age of 65.

An employee of any age who is laid off may be eligible for unemployment insurance benefits that replace a portion of lost wages, generally for up to 26 weeks. What’s more, any person who has reached age 59½ can withdraw money from individual retirement accounts (IRAs) and 401(k) accounts without owing a 10% early withdrawal penalty, although ordinary income taxes will be owed on withdrawals from non-Roth accounts.