UpFront | Published in May 2017

Retiring Later Not a Reliable Retirement Strategy

By Rebecca Moore | May 2017

Luke Vandermillen, vice president of retirement and income solutions at Principal Financial Group, says, “I think any time we talk about retirement, everyone makes the assumption it’s their own choice. When you ask people if they are saving enough and they say they’ve procrastinated and gotten a late start, many times they say they’ll just keep working, or ‘I’ll never retire.’”
There is a big gap between when active workers expect to retire and when retirees report they actually did, according to the 2017 Retirement Confidence Survey (RCS), which was performed by the Employee Benefit Research Institute (EBRI) and which Principal helped sponsor. This year’s finding that more than half of retirees left the work force earlier than expected because of their health or to take care of family shows that the choice to keep working may not be theirs, Vandermillen says.
As in previous years, workers continue to predict a median retirement age of 65, while retirees report having retired at a median age of 62. A small percentage of workers are adjusting their expectations about when to retire, perhaps recognizing that their financial preparations may be lacking. This year, 14% of workers say the age at which they expect to retire has changed in the last 12 months, and, of those, the great majority (78%) say that expected age has increased.
One reason for the gap between workers’ expectations and retirees’ experience is that many Americans find themselves retiring unexpectedly. The RCS has consistently found that a large percentage of retirees leave the work force earlier than planned (48% so far this year). Many of these cite hardships as the cause, including health problems or disability (41%); changes at their company such as downsizing or closure (26%); and having to care for a spouse or other family member (14%). Others say changes in the skills required for their job (4%) or other work-related reasons (16%) played a role. Of course, some retirees mention positive reasons for retiring early, such as being able to afford an earlier retirement (24%) or wanting to do something different (10%).
The financial consequences of an unplanned early retirement can be heavy. Those who retire earlier than planned are the most likely to say they are not confident they have enough money to sustain a comfortable retirement, or to afford basic expenses, medical expenses and long-term care expenses, when compared with those who retire when they expected to or later.
Vandermillen notes that the RCS found only four out of 10 workers have tried to calculate how much they will need for retirement. So, to prepare them for the possibility they will be unable to retire later, “the first thing we should tell people to do is figure out how much they need,” he says.