Retirement dates in a lost wage claim: Selecting and defending your estimates
- Retirement assumptions play a critical role in lost wage and benefits claims.
- Hypothetical retirement dates must balance over- and under-compensation risks.
- Work-life expectancy tables and American Community Survey (ACS) data provide widely accepted support.
- Defensible assumptions strengthen the credibility of economic damage analyses.
Determining an appropriate retirement date is a critical component of accurately calculating lost wage and benefit claims.
While the starting point of these claims is often straightforward, estimating when an injured party would have naturally exited the workforce requires careful evaluation of evidence, data sources and economic assumptions. Selecting and defending a hypothetical retirement date helps ensure that damages neither overcompensate nor undercompensate the individual.
Here is an overview of the tools and considerations many economists use to make these projections and support them in litigation:
What is a lost wage claim?
Lost benefit and lost wage claims are commonly asserted forms of economic damages following personal injury, wrongful death or unlawful termination events.
Calculating lost wage claims
In most lost wage and benefit claims, the plaintiff and the defendant will eventually reach common ground regarding the starting point for these calculations. Depending upon the alleged injury, a starting point is typically easy to ascertain, although additional circumstances may need to be reconciled with the claim.
The plaintiffs and defendants will also typically agree about the basis for the wages and benefits that will need to be projected. W-2 statements for injured employees provide a historical record of earnings. In situations where the injured party is self-employed, their “wages” are typically in the form of their normal compensation plus distributions of residual income.
Typical lost wage and benefit claims begin at the starting point or date and continue until the injured party is no longer incurring losses. One explanation for the cessation of losses is that the injured party has recovered sufficiently and is able to return to work at their preinjury capacity.
Another explanation is that the injured party would have voluntarily left the workforce at a certain age, even if they had not been injured; i.e., retired.
Hypothetical retirement dates
The economist will need to estimate a hypothetical workforce exit date if the lost wage and benefit claim ceases due to a retirement expectation.
The hypothetical retirement date is important because a lost wage and benefit claim that extends months or years past a likely retirement age, assuming no injury had occurred, would overcompensate an injured party.
Alternatively, an injured party who had the pre-injury capacity and desire to work, for example, until age 70, will be undercompensated if their hypothetical retirement date is set at 62.
Some hypothetical retirement dates are easily supported. Examples include mandatory retirement ages for many professional service firms, law enforcement agencies or employee unions.
In reality, such people may be expected to pursue second careers or complementary work after their mandatory retirement. However, such claims for lost wages and benefits after a mandatory retirement age may be considered speculative unless the injured person had tangible proof of their intention and opportunity to continue working, as well as the compensation they expected to earn.
Hypothetical dates may also receive support based on statements or actions by the injured party or their acquaintances prior to the injury. For example, voiced plans to sell a family home and purchase another residence in a remote retirement community prior to an injury may demonstrate an intention to retire, either fully or partially.
The hypothetical date an injured party would have retired, but for an injury, is frequently subjective and requires a weighing of evidence by the Trier of Fact. One role of the economist is to identify the evidence and provide a meaningful interpretation to the Trier of Fact.
Hypothetical retirement dates through alternative sources
Absent tangible support for a likely date that a person would retire, there are at least two sources that provide support for the economist to estimate a hypothetical retirement date:
Worklife expectancy tables
The work-life expectancy tables provide, among other things, a specific number of years of remaining work life for a person who has reached a certain age, at both the mean and median values.
The data is presented in tables segregated by age, sex, employment status and educational attainment. The tables do not include any distinction by race or occupation of the people represented in the survey.
Note that the years of additional work could be performed on a full-time or part-time basis. Absent other information, most economists simply assume that the years of remaining work life can be applied at a full-employment rate until the hypothetical exit from the workforce. For example, a previously employed 58-year-old male with a bachelor’s degree could be expected to leave the workforce, i.e. retire 8.5 years later at age 66.5 based on the median.
The work-life tables are widely recognized and accepted for use in lost-wage and benefit calculations. Reliance on the work-life tables by an economist eliminates their need to independently support and justify a hypothetical retirement date.
American Community Survey
Expectancy Data, a private company, compiles the underlying data collected from the ACS and publishes a summary report entitled, Full-Time Earnings in the United States. The last publication was from 2017, although the passage of time to the current date is not considered by most economists to be a material shortcoming.
The data is presented in tables segregated by the parameters: age, race, sex, educational attainment, and Standard Occupational Classification. Two highly relevant columns in the tables estimate the number of people in the United States with full-time employment who fit into the specified parameters.
Unlike the work-life expectancy tables, these tables do not specify the number of years of remaining work life. Instead, the tables summarize the number of people within each cohort by age band.
For example, the portion of the United States workforce defined as males with a bachelor’s degree includes 9,153,884 people (Table 160). 96.6% of this cohort are between the ages of 18 and 62 (8,848,210 / 9,153,884).
The data also demonstrates that only 303,898 (284,167 + 19,731) males or 3.3% of the total population are still fully employed after age 62.
It is notable that as the age bands increase past age 59, the number of workers falls by a factor of 3x. Specifically, the 55-59 age band represents 9.4% (859,017 / 9,153,884) of the workforce, while the 63-67 age band falls to 3.1% (284,167 / 9,153,884) of the workforce.
These percentages provide a proxy for the decreasing likelihood of an individual continuing to participate in the workforce.
Absent unique circumstances, proposing different hypothetical retirement dates that are contrary to the diminishing workforce participation apparent in the tables may be difficult to support.
The tables published by Expectancy Data are widely recognized and accepted for the use of lost wage and benefit calculations. Reliance on these tables by an economist eliminates the need to independently support a hypothetical retirement date.
How Wipfli can help
Wipfli professionals can provide trusted assistance in the estimation of lost wage and benefit claims. Find out more about our litigation support services, and how they can provide you with the information and confidence you need in pursuing your claim.
