Retiring Later Not a Reliable Retirement Strategy

As in prior years, there is a big gap between when active workers expect to retire and when retirees say they actually did, according to the 2017 Retirement Confidence Survey (RCS) from the Employee Benefit Research Institute (EBRI).

Workers continue to report an expected median retirement age of 65, while retirees report they retired at a median age of 62. A small share of workers are adjusting their expectations about when to retire, perhaps in recognition of the fact that their financial preparations for retirement may be inadequate. In 2017, 14% of workers say the age at which they expect to retire has changed in the past year, and of those, the large majority (78%) report their expected retirement age has increased. 

Though the median expected retirement age for workers and retirees has remained unchanged for years, workers remain notably more likely to say they expect to retire at age 70 or older than at times in the past. Nearly four in 10 (38%) workers expect to retire at 70 or older, while only 4% of retirees report this was the case. Just 9% of workers say they plan to retire before age 60, compared with 39% of retirees who report they retired that early. Seventeen percent of workers say they plan to retire between the ages of 60 and 64, although 38% of retirees say they retired in that age range. This difference between workers’ expected retirement age and retirees’ actual age of retirement suggests that a considerable gap exists between workers’ expectations and retirees’ experience.

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 workforce earlier than planned (48% in 2017). Many retirees who retired earlier than planned cite hardships for leaving the workforce when they did, including health problems or disability (41%), changes at their company, such as downsizing or closure (26%), and having to care for a spouse or another 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 else (10%).

Luke Vandermillen, vice president of retirement and income solutions at Principal, who is located in Des Moines, Iowa, says, “I think any time we talk about retirement, everyone makes the assumption it’s their choice. When you ask people if they are saving enough and they say they have procrastinated and got a late start, many times they say they’ll just keep working or ‘I’ll never retire.’” He adds that the finding that more than half of retirees retired earlier than expected because of their health or taking care of family shows it may not be a person’s choice to retire later.

The financial consequences of an unplanned early retirement can be heavy. Retirees who retire earlier than planned are more likely than those who retire when expected or later to say they are not confident about having enough money for a comfortable retirement or about paying for basic expenses, medical expenses, and long-term care expenses.

Vandermillen notes that the RCS found only four out of 10 workers have tried to figure out how much they need for retirement. So, to prepare for the possibility of not being able to retire later, “the first thing we should tell people to do is figure out how much they need,” he says.

The second thing would be, if employees have access to an employer-sponsored plan, tell them to participate and contribute enough to at least take advantage of the company match, according to Vandermillen. For those who do not have access to an employer-sponsored retirement plan, they can set up an individual retirement account (IRA) to automatically deduct from their pay or bank account.

He also says most people will be well-served by seeking the services of a financial adviser. “The concept of retirement can be intimidating. There are many facets—managing debt, saving at the right rate, where to invest—it is a good idea for people to not figure this out on their own,” he states.

In another expectations gap, the RCS has consistently found that workers are far more likely to expect to work for pay in retirement than retirees are to have actually worked. The percentage of workers planning to work for pay in retirement now stands at 79%, compared with just 29% of retirees who report they have worked for pay in retirement.

Almost all retirees who say they worked for pay in retirement in the 2017 RCS give a positive reason for doing so, saying they did so because they wanted to stay active and involved (90%) or enjoyed working (82%).

However, they say that financial reasons also played a role in that decision, such as wanting money to buy extras (67%), needing money to make ends meet (42%), a decrease in the value of their savings or investments (23%), or keeping health insurance or other benefits (13%).

Vandermillen notes that similar to planning to retire later, health or taking care of a loved one might prevent someone from working for pay in retirement. In addition, some jobs are more suited for a younger person than those at an advanced age. The job market may not be that good, people may not have the skills or training for jobs available in their area, or there may be no jobs available that interest the person.

For those for which working for pay in retirement will not pan out, Vandermillen makes the same recommendations as he does for those for whom retiring later won’t pan out.

“It is never too late to start setting money aside; every little bit helps,” he says. ”Saving more gives employees more options. If you don’t save, you have to hope you stay in good health and have the skills for jobs in your area.”

Vandermillen adds that one consistent theme of the RCS survey, which is now in its 27th year, is that people who have access to an employer-sponsored retirement plan have a confidence level so much higher than those who don’t. Also, there is a link between stress about an employee’s personal financial situation, and how much they think of that at work. “It lowers productivity. Forward-thinking employers create a benefit package to ease stress for employees, not just because they want to help employees, but for the return for their business,” he concludes.