"Working" Capital

In response to concerns that tomorrow’s retirees will run short of money, we are often told to save more, to work longer, or — as often as not these days — to work longer and save more. Certainly working and saving longer can do wonders in terms of stretching your retirement nest egg.

It should probably come as no surprise that American workers are expecting to work longer. The Retirement Confidence Survey notes that in 1991, just 11% of workers expected to retire after age 65. This year that was up to 33% of workers, and another 10% who said they don’t plan to retire at all.

However, the timing of the retirement decision is often not within an individual’s control. A recent survey conducted by Merrill Lynch and Age Wave found that a majority of retirees surveyed (55%) say they retired earlier than they had expected — just 7% later than they expected. Similar trends were found in EBRI’s 2014 Retirement Confidence Survey (RCS), where while more than one-in-five (22%) of workers say they plan to wait at least until age 70 to retire, only 9% of current retirees actually did so. In fact, going back to 1991, the RCS has found that the median (midpoint) age at which retirees report they retired has remained at age 62 throughout this time.

In fact, the RCS has consistently found not only that a large percentage of retirees leave the work force earlier than planned (49% in 2014), but that many retirees who retired earlier than planned cite negative reasons for leaving the work force when they did, including:

• health problems or disability (61%);

• changes at their company (such as downsizing or closure (18%); or 

• having to care for a spouse or another family member (18%). 

The Merrill Lynch/Age Wave survey cautions that while early retirement used to be equated with financial success, today’s retirees say that health problems are now the top reason for their early retirement (37%). In fact, the surveys indicate that the issues that seem to be triggering earlier-than-expected retirements not only serve to cut short working (and savings) careers, but bring with them additional expense.

Retirement planning requires a lot of assumptions — things like how much we’ll need to live, the return(s) on our investments, how long we’ll live in retirement, and when that retirement will begin.

However, the data also suggest that the assumption that we’ll be able to work to — much less through — the traditional retirement age of 65 may be one of the more optimistic.

- Nevin E. Adams, JD