Why working longer is a bad retirement plan: Unveiling the Reality of Retirement Plans

In the grand scheme of retirement, it's like this massive stage play where everyone's got a different script in mind. You're thinking, "Yeah, I'll work longer, no big deal," but reality throws in its own plot twists.

So, according to the Employee Benefit Research Institute, a whopping 46% of retirees in 2023 hit the exit door earlier than they planned. Job loss, health curveballs – life's full of surprises, right?

The stats play their part, showing that the expected retirement age is this polished 66, but the actual retirement age? Drumroll, please... a cool 62 on average. That's a consistent gap of five years between the dream and the reality check since 2002, thanks to our friend Gallup.

Now, David Blanchett, head of retirement research at PGIM, the financial wizard, drops some wisdom. You've got folks in their late 40s or early 50s saying, "I'll retire at 65 but maybe stretch it to 70." Spoiler alert: most won't make it to 70. Retiring early? Cue the dramatic music; it messes with your finances.

Blanchett's like, "Hold up, delaying retirement is the secret sauce." Postponing the final act by a few years has this crazy positive financial effect. You're still cashing in that regular paycheck, dodging the 'living off savings' drama. Plus, time becomes your BFF, letting you stash more cash and watch your assets grow – fingers crossed.

But, and there's always a 'but,' retire earlier than planned, and you're in for some financial turbulence. Especially if you're eyeing the early 60s or later, according to Blanchett's research.

Unpredictable events steal the spotlight in this retirement drama. Health problems, company shake-ups – things you can't control, as Blanchett reminds us. Yet, there's a glimmer of hope. Some folks leave early because they can afford it, and almost half stick to their retirement schedule. Not all doom and gloom, right?

Now, enter the tragic drama of job loss. Richard Johnson, our seasoned storyteller from the Urban Institute, unveils the harsh truth. More than half of those in their early 50s get the boot before they're ready to retire. Ageism, the villain in this tale, plays a nasty role. Post-job loss, the financial aftermath hits hard, with 90% earning less – sometimes way less.

But wait, there's more. The aftermath of the Great Recession becomes this haunting backdrop. Workers 50 to 61 are 20% less likely to find a new gig than their younger counterparts. If you're 62 or older, the odds drop to a gloomy 50%.

So, Johnson's like, "Yeah, working longer is a solid option to beef up those retirement savings." But, big but, don't bet your chips on staying in your job as long as you want.

Now, the current labor market gets a standing ovation. Older workers finding new gigs – a hopeful interlude. Remote work might be the savior for retirees, softening the financial hit of an early retirement.

And as the curtain falls on this exploration of retirement, we're left pondering the uncertainties. Retirement's a complex tapestry where dreams and realities waltz together. Working longer might sound like a solid plan, but the only certainty in this grand play is the need for a resilient strategy that dances gracefully with life's uncertainties.

FAQs

What percentage of retirees stopped working earlier than planned in 2023?

Almost half, precisely 46% of retirees, found themselves leaving the workforce sooner than anticipated, as revealed by the Employee Benefit Research Institute.

What are the common reasons for early retirement?

Common reasons for early retirement include unforeseen circumstances such as job loss or health complications, often disrupting well-laid retirement plans.

What negative financial effects can early retirement have?

Early retirement can lead to negative financial effects, including the depletion of savings and the premature claiming of Social Security benefits before the optimal time.

How can delaying retirement have a "dramatic" positive financial impact?

Delaying retirement allows individuals to continue receiving a regular paycheck, avoiding reliance on savings. It provides extra time for saving and allows assets to grow, while also enabling the delay of claiming Social Security benefits for a higher monthly payout.

What are the consequences of retiring earlier than anticipated, according to experts?

Retiring earlier than anticipated, especially for those planning to retire in their early 60s or later, can have a significant negative impact. According to research by David Blanchett, those aiming for a retirement age past 61 end up retiring about half as far into the future as expected.

How has Social Security's full retirement age and shifting trends influenced retirement age?

Social Security's full retirement age has gradually been pushed back, reaching as late as age 67 for those born in 1960 or after. Shifting trends, such as increased life expectancy and the transition from pensions to 401(k)-type plans, contribute to the evolving landscape of retirement age expectations.

Why do some workers expect to retire at age 70 or later, but only a small percentage actually do?

One-third of workers anticipate retiring at age 70 or later, or not retiring at all, according to the Employee Benefit Research Institute. However, only 6% of retirees actually follow through with retirement at age 70.

What are the key factors contributing to early retirement?

In 2023, 35% of individuals who retired earlier than planned did so due to hardships like health problems or disabilities, while 31% attributed their early retirement to changes at their company.

Is job loss significant for older adults, and why?

Job loss is especially consequential for older adults, with more than half, 56%, of full-time workers in their early 50s getting pushed out of their jobs due to circumstances like layoffs, according to the Urban Institute. This workplace dynamic is often attributed to ageism.

How has the strength of the current labor market impacted job opportunities for older workers?

While today's strong labor market may make it easier for older workers to find new jobs, the duration of this strength remains uncertain. This may provide an opportunity for retirees, especially those able to work from home, to secure part-time gigs and soften the financial impact of earlier-than-expected retirement.