Planning to Retire Later Doesn’t Reflect Reality

A Prudential study finds 51% of retirees retired earlier than planned; with half retiring five years or more early.

Studies show that many employees expect to retire later as part of their plan to have more income in retirement.

However, a study from Prudential finds 51% of retirees retired earlier than planned. Among those, only 23% retired earlier than planned because they either had enough money to retire, wanted to retire, or were tired of working. Forty-six percent of those who retired earlier than expected did so due to health problems, 30% were laid off from their jobs or offered an early retirement incentive package, and 11% left work to take care of a loved one.

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Not only did retirement occur earlier than planned for many, but the gap between average actual and expected retirement ages was significant. Of those who retired earlier than planned, half (50%) retired five or more years early. Prudential says this is especially important because the last several years of individuals’ careers are generally considered to be among their top earning years, and provide an opportunity to boost the inputs that may drive retirement income levels from Social Security benefits and defined benefit (DB) plan income, if any is available.

Other forces may converge to strain individuals’ financial resources in the event of an unplanned early retirement. Obviously individuals will have additional years in which to provide retirement income—some of which may occur before individuals become eligible for Social Security benefits. In addition, individuals retiring earlier than planned may start retirement with a lower level of assets because they have fewer years in which to build a nest egg. And, the potential loss of employer-sponsored health insurance, coupled with an increase in out-of-pocket expenses for individuals retiring for health reasons, may further strain financial resources.

Prudential cites an analysis by the Urban Institute that reveals working an additional five years would result in a 56% increase in retirement income based on the incremental net wealth accumulated. Said another way, this translates into a 36% reduction in retirement income needed for individuals retiring five years early.

Pre-retirees should expect the unexpected

Prudential found pre-retirees seem well-aware of risk factors for retirement. When asked about their greatest concerns that could negatively affect retirement savings, three of the factors cited—illness or disability (43%), losing a job (35%), and taking care of a loved one (12%)—could “force” an early retirement.

Other concerns pre-retirees listed were health care costs (the top concern), potential changes to the Social Security program, and market factors, such as inflation, a market crash, and market volatility.

Although pre-retirees seem aware of risks to their planned retirement, Prudential expects the gap between expected and actual retirement age is likely to continue. Today’s pre-retirees target a retirement age of 65, which is much higher than the actual retirement age of 59 for the retirees in the study. Moreover, 20% of pre-retirees expect they will never retire.

In addition, when it comes to actually being prepared to retire, Americans, on average, grade themselves a “C”—and this grade assumes their current expected retirement age.

It is clear that many pre-retirees could benefit from a financial plan, according to Prudential. Nearly three-quarters of pre-retirees (74%) agree that they should be doing more to prepare for retirement, but 40% say they simply don’t know what to do. Over half (54%) of pre-retirees have less than $150,000 saved in their employer-sponsored plans. On a positive note, pre-retirees, on average, have started saving earlier (at age 30) than retirees started saving (at age 39).

The Retirement Preparedness Study was conducted using an online survey among 1,568 adults (including 438 retirees). The study report is here.

Lucas Takes the Helm at EBRI

Lori Lucas, previously with Callan Associates, tells PLANSPONSOR there is a new vision for the Employee Benefit Research Institute’s future.

The Employee Benefit Research Institute (EBRI), a source of data and research on retirement, savings and health programs for workers, announced the appointment of Lori Lucas as president and CEO, effective immediately.

 

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Lucas tells PLANSPONSOR there is a new vision for EBRI’s future as it marks its 40th anniversary in 2018. For one, EBRI is planning to roll out a new website.

 

“The key to the new vision is making research more relatable,” she says. “My background has been doing various types of research in various roles—the Callan DC Index, different research at Hewitt—and we want to make complex concepts accessible to those not necessarily in the industry.” Part of EBRI’s role is to be a presence in Washington and make information available to those making policy decisions, she adds.

 

Another goal of the new vision for EBRI is to expand the notion of what employee benefits really are, according to Lucas. “Historically, EBRI’s focus has been on retirement plans and health care benefits, but now, many employees are coming out of college with student loans they want to pay off before saving for retirement, and many of all generations do not have emergency savings. So what does employee benefits mean now?” she queries.

 

EBRI wants to strengthen its voice and presence by doing more testimony at conferences, making more partnerships and improving its visibility so its voice is stronger, Lucas adds.

 

Lucas replaces Harry Conaway, who was president and CEO for two years, following the retirement of Dallas Salisbury, the founding president and CEO.

 

Most recently, Lucas worked as an executive vice president at Callan Associates, where she was responsible for setting the direction and profitability of Callan’s defined contribution (DC) business, managing the Defined Contribution Consulting Team, launching and delivering retirement research, and directly working with plan sponsors and other clients. Prior to that she was director of Retirement Research at Hewitt Associates.

 

Even at her short time at EBRI, Lucas says there are a number of issue briefs already underway. One is the examination of automatic enrollment’s impact on participant debt. “We are using our participant database to find out what impact we see. Are people going to be burdened by debt what does empirical evidence show about auto enrollment’s effect on debt levels?”

 

With the recent market volatility, Lucas says EBRI will be looking closely at the section on its website that shows changes in participant account balance on a monthly basis. “It’s been positive for a while. We’ll be looking at it more closely to get empirical data about what’s happening with balances and why,” she says.

 

One can tell by her experience and her enthusiasm about the new position that research is Lucas’ thing. “This is my dream job!” she exclaims.

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