Early retirement is no longer the goal of most workers. Even retirement at age 65 now seems unattainable to many people. The majority of Americans now expect to work until age 65 or later.
The number of Americans planning to retire before age 65 has dropped from 50 percent in 1996 to 29 percent today, according to a recent Gallup survey of 1,020 adults. Meanwhile the proportion of people planning to work until after age 65 has increased steadily from 15 percent in 1996 to 34 percent this year. This is the first time in the 15-year-old survey that more current workers planned to retire after age 65 than before it. Another 27 percent of current employees plan to retire exactly at age 65.
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There are a number of factors that may be increasing American’s interest in delaying retirement including a rising Social Security full retirement age, a shift from traditional pensions to do-it-yourself retirement accounts, and an increasing interest in working not only for a paycheck, but for social and personal satisfaction. Here is why workers may be delaying retirement.
Stock market slump. Some 7.9 trillion dollars are currently held in retirement accounts including 401(k)s and IRAs, up considerably from a low of 5.9 trillion in the first quarter of 2009, according to Urban Institute estimates. But retirement account balances are still far from their peak of $8.6 trillion in 2007, even as most employees continued to save in these accounts. Many Americans with their life savings in 401(k)s and IRAs will need to work longer to replace 2008’s stock market losses. “A lot of preretriees had it in their mind they were going to retire right around now and then their portfolios got hit pretty hard,” says Jeremy Portnoff, a certified financial planner for Portnoff Financial in Westfield, N.J. “I think people recognize the need to potentially work longer and rely less on those accounts.”
Less employer help. The number of private sector workers who participate in a traditional pension that guarantees retirement income for life declined 33 percent from 30.1 million in 1980 to 19.9 million in 2006, according to the Department of Labor. Over the same time period the number of workers enrolled in 401(k)s and similar types of retirement accounts increased from 18.9 million to 65.8 million. Although many employers contribute to 401(k) accounts, the amount varies considerably from company to company. And there’s no guarantee that employers will continue to make 401(k) contributions. At least 267 employers reduced or suspended their 401(k) match in 2009, according to a list maintained by the Pension Rights Center.
Not saving enough. Less than half (46 percent) of working Americans say they will have enough money to live comfortably in retirement, down from 59 percent in 2004, Gallup found. Those who aren’t saving enough to maintain their current standard of living throughout retirement are somewhat more likely to anticipate working after age 65 than are those who expect to have enough money. Choosing good investments can’t make up for a lack of savings. “Don’t assume that you are going to win the lottery with your investing,” says Rick Shapiro, a certified financial planner for Investment and Financial Counselors in West Hartford, Conn. “Assume you are going to have a reasonable rate of return of 6 to 8 percent.”
Social Security changes. The age at which Americans can collect the full amount of Social Security benefits they have earned was once age 65. But for Americans born in 1938 or later that is no longer true. The full retirement age gradually increases from age 65 and 2 months for those born in 1938 to 65 and 10 months for the 1942-born. Workers born between 1942 and 1954 may collect their full due at age 66. After that, the retirement age again increases, finally reaching 67 for employees born in 1960 or later. While all workers can sign up for Social Security at age 62, they will receive reduced checks for early claiming. For example, a baby boomer born in 1961 who would be due $1,000 a month at age 67 would receive just $700 monthly checks if he signed up at age 62.
Making it to Medicare. Medicare eligibility generally doesn’t begin until an American reaches age 65. Adults in their 50s and early 60s may be charged unaffordable premiums for individual insurance policies. Continuing to work is one way to maintain group health insurance coverage until you qualify for Medicare.
Personal fulfillment. Some Americans will delay retirement because they enjoy their work. Certain jobs provide an opportunity for social interaction and community involvement that can be lost when retirees exit the workforce. “Retirement in this day and age really means that they get to pursue what they have a passion for,” says Sheryl Rowling, an accountant and personal financial specialist for Moss Adams Wealth Advisors in San Diego, Calif. Many retirees pursue second careers teaching, consulting, or otherwise passing on their skills and experience to the next generation.