Early retirees have taken a hit to their real incomes

A new analysis by JPMorgan Chase Institute highlights slower income growth for workers nearing retirement, as many saw their purchasing power decline during the pandemic.

The report covers the period from December 2019 to July 2024 and examines trends in household purchasing power across various race, income, and age groups.

Among other findings, the researchers determined that older individuals, particularly those in their 50s and 60s, experienced the most significant income setbacks, largely due to a rise in early retirements fuelled by the pandemic.

"As workers get closer to retirement age, income growth tends to slow and turn negative," the report's authors said. "For the cohort [of late-stage workers or early retirees] starting in December 2019, we saw lifecycle dynamics directionally consistent with this pattern, but declines in real income have exceeded recent historical norms."

JPMorgan found that the pandemic significantly disrupted the typical lifecycle of income progression for older workers.

“Individuals across age groups have seen slow real gains over the past few years that are near the low-end of ranges seen during the 2010s,” the report noted. However, those in their late 50s and early 60s fared worse than younger age groups.

It pointed to Federal Reserve research showing a Covid-driven bump in early retirements, in excess of demographic trends, which likely paved the way for income declines among recent late-stage working Americans and early retirees.

"Individuals in their mid-50s through early retirement years in December 2019 experienced real income declines worse than both benchmarks from the 2010s,” the report said.

Beyond the pandemic or health-related variables, it suggested some early retirements might have been driven by Covid wealth effects, particularly from rising home and stock values .

While the data paint a sobering picture of the pandemic's impact on older Americans' real incomes, the researchers highlighted a silver lining.

"If pandemic early retirements are in fact the main factor [behind the recent outsized decline in real incomes], the apparent shortfall seen for the December 2019 cohort may decline over time," the report said.