Is a Late Retirement Right for You?
Many American workers are behind on their retirement savings. For many, there's almost no way they'll have enough money to retire, barring a winning lottery ticket, a surprise inheritance, or some other unexpected windfall.
Many Americans have decided they will have to work well into retirement to make ends meet, but this expectation may not align with reality, according to a survey from the Employee Benefit Research Institute (EBRI).
- Believing that you'll solve your retirement problems by working longer, rather than saving more now, may not pan out.
- Not only can serious illnesses force you to leave the workforce early, but healthcare costs can also quickly drain your savings.
- Most workers plan on using income from SSA during their retirement.
- Individuals need to figure out how to save more by cutting expenses and investing a higher percentage of their income in retirement accounts.
- The Covid-19 pandemic impacted workers and retirees alike. The EBRI survey found that four in 10 workers reported income or job loss in 2020.
Retirement Expectations vs. Reality
In 2021, the EBRI found that while 72% of workers said they expected to work for pay in retirement, only 30% of retirees reported doing so. This trend has persisted for decades. Since 1999, the annual survey has shown that many workers planned to work for pay in retirement, but few of them did.
The EBRI also found that although workers expect to have a longer work life, the median retirement age has remained at 62 for several years. In 2021, one in four retirees adjusted the retirement age, including 17% who plan to retire later and 6% who plan to retire earlier.
Why are people leaving the workforce unexpectedly? In the majority of cases, it had to do with health issues, with 34% citing health problems (unrelated to the coronavirus) or disability. Others left due to changes in the workplace, such as downsizing or closings, which caused their departure (25%), and 41% retired early simply because they could afford to do so.
Save Now Regardless
It's essential that you don't kick the can down the road. Believing that you'll solve your retirement problems by working longer rather than saving more now may not pan out.
Just like with projected retirement age and plans to work in retirement, the EBRI found American workers have unrealistic ideas about how much income their retirement accounts will provide. In 2021, 83% of people in the workforce said they believed their employer-sponsored retirement plan would be a major source of income. However, only 23% of workers said they were very confident they would have enough to cover their basic expenses in retirement.
Meanwhile, 33% of workers said Social Security would be a significant source of their retirement income. Of course, Social Security is in better shape now than it may be down the road.
According to the Social Security Administration (SSA), the funds for retirement benefits—the Old-Age and Survivors Insurance (OASI) Trust Fund—will be depleted in 2033, and the agency will only be able to cover 76% of scheduled benefits with tax income. So you need to save as much as possible while you're still working. If you can, take advantage of catch-up contributions permitted to your IRA and 401(k).
The trend is clear, according to the EBRI: "The [Retirement Confidence Survey] has consistently found that a large percentage of retirees (46%) leave the workforce earlier than planned."
Beating the Trend
If you plan on working past the normal retirement age, there are a few steps you can take to try to beat the trend.
The first step should be to do what you can to stay as healthy as possible by eating right and exercising. Less than a quarter of Americans 18 or older meet physical activity guidelines for cardiovascular and muscle-strengthening activity. Not getting enough physical exercise can increase a person's risk of developing heart disease and type 2 diabetes. Exercise can also lower the risk of many cancers, such as bladder, breast, colon, and kidney cancers. Not only can a serious illness force you to leave the workforce earlier than expected, but healthcare costs can quickly zap your savings.
Next, think about what you would do to earn income in your later years. If you've spent your life in a career that involves a lot of physical activity, it will likely become harder to perform that job as you age. Think about becoming a consultant in your field, entering management, or finding another career that doesn't require much physical labor.
If you're in a job that lends itself to consulting, consider doing what you can to build visibility in your field (becoming active in a professional organization, for example) and doing some consulting before you're ready to retire.
The Bottom Line
As if Americans needed any more bad news about retirement, statistics show the current workforce has some unrealistic expectations about what those years will hold. Even if you plan to work well past the traditional retirement age, there's strong evidence that your health or some other impediment may prevent you from doing so. Start planning today. Figure out how to save more by cutting expenses and investing a higher percentage of your income in your retirement accounts.