Retirement Reality Check: Why Working Longer May Not Work

When it comes to retirement, many Americans find themselves retiring earlier than planned, often due to unforeseen circumstances. Retirement plans can be disrupted by factors such as poor health or job loss. In 2024, a Gallup survey found that Americans expected to retire at the age of 66, but the actual retirement age turned out to be 62 on average. This consistent gap of about five years between expected and actual retirement ages has been observed since 2002.

One’s finances can be significantly improved by delaying retirement by just a few years. According to retirement experts, continuing to work and receive a regular paycheck allows individuals to avoid living off their savings. It also provides extra time to save and allows assets to grow. Additionally, delaying the claiming of Social Security benefits can result in a higher monthly payout for the rest of one’s life.

On the other hand, retiring earlier than anticipated can have a detrimental effect on one’s finances. This mainly affects individuals who plan to retire in their early 60s or later. Research shows that those who aim to retire past 61 often fall significantly short of their goal. For example, someone who plans to retire at 69 may end up retiring around the age of 65.

Several factors contribute to the trend of retiring earlier than expected. The gradual increase in Social Security’s full retirement age, reaching 67 for those born in 1960 or later, has pushed some people to retire later. Additionally, the shift from pensions to 401(k)-type plans has eliminated the age-related incentives that pensions used to provide.

Employee Benefit Research Institute (EBRI) reports that one-third of employees expect to retire at 70 or later, but only 6% of retirees actually do so. Most retirees who retired earlier than planned faced hardships due to health problems, disabilities, or company changes. These unforeseen circumstances are not within an individual’s control.

Job loss is a significant factor affecting older adults’ retirement plans. A study conducted by the Urban Institute found that over half of full-time workers in their early 50s experienced involuntary job separation before they were ready to retire. This can have severe consequences, as the study shows that only 10% of those who lost their jobs in their early 50s earn as much per week after separation, with 90% earning less, often substantially so. Furthermore, finding new employment becomes more challenging as individuals get older.

While working longer is considered a viable option to bolster retirement savings, experts caution against assuming the ability to work as long as desired. Though the current strong labor market may make it easier for older workers to secure new jobs, the duration of this market strength remains uncertain. However, retirees today, especially those who can work remotely, may have the opportunity to find part-time work to mitigate the financial impact of early retirement.

As individuals navigate their retirement savings, they should consider these factors and be prepared for unexpected circumstances that may lead to alterations in their retirement plans.