Thinkadvisor.com, March 26, 2015, David Weldon
From congressional hearings, to research studies, to countless media reports, one would think the American worker would be getting the message that most need to stay longer in the workforce before retiring. But that isn’t at all the case, a new study confirms.
Indeed, the average retirement age for men today is 64, and for women, 62. Neither average is making it anywhere close to the new recommended retirement age of 70, let alone the earlier Social Security targets of 65 or 67. “Today’s average retirement ages are just about where they were a decade ago, suggesting that some of the factors spurring the turnaround since the 1980s may have exhausted themselves,” said Alicia H. Munnell, of the Center for Retirement Research (CRR) at Boston College.
This month the CRR updated its average retirement age projections, looking at data going back to 1962. In its report, “The Average Retirement Age – An Update,” the CRR found that the average retirement age for men has remained fairly stable during that entire time – ranging from 62 percent to 65.5 percent for the four decades.
There is some good news with the statistics for women, which have increased dramatically during that time overall, from 52.5 percent in 1962 to the current 62 percent. Still, the numbers for women have leveled off the past decade, when they had increased to 60 percent.
Munnell said she was very surprised by the center’s most recent findings. Like most people, she said, the expectation was that retirement ages would be on the rise. “For people to be secure in retirement they really have to work longer,” Munnell said. “There have been a lot of factors that encouraged people to increase their workforce activity and I thought those things would have been just chugging along, pushing everything up continuously. But they don’t seem to have.”
The CRR study examined a number of factors that could impact retirement age, including anticipated healthcare considerations, labor force participation, and the benefit of employer pension plans. “This was really an opportunity to update the numbers, to see what is happening, and to see if the average retirement age was continuing to rise, or whether some of the factors that had led to the rise were petering out,” Munnell said of the new study. “Basically, our sense, my sense, was that there were a lot of things turning the patterns around in the late 80s, early 90s, and that a lot of those forces may have run their course and things seemed to be leveling out.”
That may be why so many Americans are said to be ill-prepared for retirement, with too little savings, and too few options on how to increase retirement income. In response, Munnell said. “the next big push” is needed.
So what caused the first big push when it comes to average retirement ages? “I conclude that most of the mechanical things—the shift from defined benefits to defined contribution plans, high healthcare costs, the desire to wait to age 65 to have Medicare, improved health and longevity, and education—those have sort of worked their magic,” Munnell said. But the impact of those factors has run their course, she believes.
“I don’t know the extent to which they take longevity into account,” Munnell said. “I think people are generally aware that we are living longer than we have in the past. But I don’t think people really understand what life expectancy at age 65 is. You have 20 more years on average for both men and women. Half the people are going to live longer than those 20 years. I don’t think there is a clear understanding of how long you may need to support yourself.”
That puts greater pressure on retirement planners, the government, and media, to stress the need for many workers to delay leaving the workforce if they are to maintain their lifestyle in retirement. “I think at this point what is needed is a big educational campaign to clarify that the age at which you get the best benefits from Social Security is age 70, and if you want to maximum that income you should defer collecting as long as you can,” Munnell said.
Despite the need for many to work beyond age 65, even to age 70, not everyone can of course. And there could be any number of reasons why. “Statistically speaking, you ask people when they want to retire and very few say they want to retire before age 64,” said Charlie Harriman, a financial advisor with Cloud Financial Inc. But with 69 percent of Americans retiring before age 64, obviously something is going on here.
“Typically it is due to health issues, job loss, whatever it might be,” Harriman says. “So the fact of the matter is, even though we might think we’re going to work to age 65 or age 70, we’ve got to be prepared for the unknown and the possibility of having to retire early.”
For those workers that can wait, or who really need to wait, the retirement planner needs to play the numbers game with their client. “The biggest thing we would do, if an individual wants to retire today but they really need to wait, is run some analysis. We would really show them why they need to wait, why if they can delay Social Security—and when you delay Social Security you get an 8 percent raise every year—what that 8 percent raise will do for them over the long run,” Harriman said.
There is also a critical factor in all of this that has nothing to do with wealth. It involves time. “There is the one extreme of people that want to retire quite young. And then at the other extreme are those that think they can never retire,” said Evelyn Zohlen, founder and president of Inspired Financial. “Both of those are true and heartfelt, and I would describe them both candidly as uninformed.”
The more informed of the two is unquestionably the person who wants to retire early but doesn’t need to. After all, Zohlen said, golf or bridge can only fill so many hours. The individual has decades still ahead of them. “The person that thinks they are going to retire at age 55 hasn’t thought through what are they going to do every day, seven days a week for the next 40 years of their life,” Zohlen said.
To Your Successful Retirement!
Michael Ginsberg, JD, CFP®