Dissecting the Great Retirement Boom

Between 2020 and 2023, the fraction of retirees in the working-age population in the U.S. increased above its pre-pandemic trend. Several explanations have been proposed to rationalize this gap, including increases in net worth, the deterioration of the labor market with higher job separations, the expansion of fiscal transfer programs, and higher mortality risk. We develop an incomplete markets, overlapping generations model with a frictional labor market to quantitatively study the interaction of these factors and decompose their contributions to the rise in retirements. We find that new retirements were concentrated at the bottom of the income distribution, and the most important factors driving the rise in retirements were higher job separations and the expansion of fiscal transfers. We show that our model’s predictions on aggregate labor market moments and cross-sectional moments on retirement patterns across income and wealth distributions are in line with the data.