This is the latest in a series of columns about Social Security and retirement income planning.
Surveys commonly show that many American workers plan to delay retirement beyond the traditional ages of 62 or 65 — with the majority in one recent study by the Employee Benefit Research Institute citing a target age of 70 or older.
Nearly a quarter of workers (23%) told the EBRI research team that they will retire "at 70 or not at all," either due to the financial challenge of leaving a paycheck or simply because they like to work. The reality, however, looks a lot different, with just 6% of current retirees having worked that long.
For many of us, the timing and nature of our departure from the workforce is simply out of our hands, whether due to a health crisis, a dated skillset, recessionary layoffs or some other cause.
The EBRI report shows us just how common such outcomes are. On average, workers reported an expected median retirement age of 65, while current retirees report they retired at a median age of 62. Even more notable, while just 14% of workers said they plan to retire before the age of 60, nearly a third (32%) of retirees left the workforce that early.
Sobering as such statistics are, they also present an opportunity for advisors to help their clients more adequately prepare for life after work. That is, by acknowledging that the timing of retirement is often outside of one's control, advisors can give clients added motivation to take proactive actions today.
Clients concerned about their financial outlook may choose to save more now, while others with a more stable financial future can start to envision how they would like to spend time in retirement. Whatever the case, recognizing the big challenges of "controlling" retirement is a useful exercise for all of us.
What the Data Shows Us
Many who said they retired earlier than planned did so because of a hardship, according to EBRI, such as a health problem or disability (31%). Another 32% said that they retired due to changes at their company.
One telling dynamic is that workers who are not confident about their financial security in retirement generally plan to retire later, on average, than those who express confidence.
For example, 51% of workers who are not confident in their retirement finances said they either will not retire or do not know when they will retire. This compares with only 15% who are very financially confident.
Another imbalance identified in the survey pertains to workers' intent to seek gainful employment after they retire from their primary career. Specifically, three in four workers plan to work for pay in retirement, but fewer than a third (30%) of retirees have actually done so.
Over the years, EBRI has consistently found that workers are far more likely to plan to work for pay in retirement than retirees are to have done so. The size of this mismatch, alongside the fact that people generally leave work sooner than expected, is something that all advisors and clients need to know.
The Good News
There is no doubt that the EBRI report paints a worrying picture, one in which early (and often involuntary) retirements are apparently the norm here in the United States. It should also be noted, however, that a large share of the surveyed retirees actually said they left their job because they could afford to retire earlier than expected (39%).
With respect to where retirees are sourcing their income, EBRI's study shows many are able to successfully rely on a patchwork of individual savings and government benefits to make ends meet.
To begin with, 91% of retirees said Social Security provides a source of retirement income, including 62% who said their benefits are a major source of income. Among workers, 88% expect Social Security to be a major or minor source of income in retirement, but they also believe that personal savings will play a large role.
