Early retirement is a dream for many, but for a significant number of Americans, it becomes a reality not by choice, but due to unforeseen events. While working longer is often touted as a way to bolster retirement savings, it’s not always feasible.
A Gallup poll from 2022 revealed that the average expected retirement age in the United States was 66. However, the actual retirement age turned out to be 62, on average. This trend of retiring earlier than planned has persisted for years, with a consistent gap of about five years between expected and actual retirement ages since 2002, as reported by Gallup.
According to the Employee Benefit Research Institute’s 2023 Retirement Confidence Survey, 46% of retirees admitted to leaving the workforce earlier than they had intended. This statistic has remained relatively steady for the past two decades, typically ranging from 40% to 50%.
David Blanchett, a certified financial planner and head of retirement research at PGIM, emphasized that many people who are off track for retirement set goals to work until age 70 but often fall short of this target. Delaying retirement can have a substantial positive financial impact. It allows individuals to continue receiving a regular paycheck, grow their savings, and potentially delay Social Security benefits, resulting in higher monthly payouts.
However, the adverse effect of retiring earlier than expected can be equally significant, especially for those planning to retire in their early 60s or later, according to Blanchett’s research. People targeting a retirement age beyond 61 tend to retire about half as far into the future as expected. For instance, someone aiming for retirement at 69 may end up retiring at around age 65.
Several factors contribute to the push for later retirement. Social Security’s full retirement age has been incrementally raised, reaching as late as age 67 for those born in 1960 or later. The increased life expectancy of Americans has also necessitated more significant savings to sustain their lifestyles in old age.
The transition from traditional pensions to 401(k)-style plans is another influencing factor, as pensions typically encourage retirement at a specific age, whereas 401(k) plans lack such incentives.
Despite the desire of many workers to retire later, only 6% of retirees actually retire at the age of 70 or later, according to the Employee Benefit Research Institute. Unexpected hardships such as health problems or disability (35%) and workplace changes (31%) frequently lead to early retirement. These are often factors that individuals cannot control.
Job loss in older age is a significant concern, with 56% of full-time workers in their early 50s experiencing involuntary job separation. This situation often leads to a reduction in income, as older workers who lose their jobs are less likely to be reemployed at the same wage level. The aftermath of the Great Recession revealed that older workers who lost their jobs were less likely to find new employment, with those aged 62 and older facing even greater challenges in securing new positions.
While working longer can be a valuable strategy to enhance retirement savings, older workers should not rely solely on this option. Factors such as ageism in the workplace and the unpredictability of the job market can impact the feasibility of continuing to work. In light of this, experts suggest that retirees, particularly those who can work remotely, consider part-time opportunities to offset the financial implications of earlier-than-expected retirement from full-time employment.
The strong current labor market provides some optimism for older workers seeking new opportunities, but the long-term sustainability of this trend remains uncertain.