The typical American retires much earlier than expected, and it’s often not by choice, according to a new study from the Transamerica Center for Retirement Studies.
The median retirement age in the United States is 62, and nearly six in 10 retirees tell the research firm that they left the workforce earlier than expected. Nearly half of those people said the reason was related to health issues, such as physical limitations or disability. Losing a job or an organizational change at their employer are other reasons why people stopped working before planning for retirement.
“Financially precarious”
The findings underscore the fragility of retirement in the United States, where older Americans often find themselves retired before they are financially ready to quit. And because many people outlive previous generations – the typical respondent told Transamerica he expected to live to be 90 – they also face the prospect of supporting themselves financially for several decades in retirement, which can easily stretch, or even deplete, their savings.
“Many of them are financially precarious: if they were to suffer a major financial shock or their health deteriorated and needed long-term care, they would struggle to afford it,” said Catherine Collinson, CEO and president of Transamerica. Center for Retirement Studies, told CBS MoneyWatch.
The research confirms previous research on the typical retirement age, with the nonprofit Employee Benefits Research Institute finding earlier this year that median retirement age for Americans, it’s 62 years. This highlights the gap between retirement plans and reality, with business leaders and policy experts often urge Americans to work longer so they can save more for their later years — a strategy that often doesn’t go as planned.
Retirees being forced to leave their jobs earlier than expected is “a wake-up call to people currently in the job market,” Collinson said.
People should actively maintain their health and keep their skills current, while learning about retirement and financial planning, as well as saving, she noted.
Why Americans are claiming Social Security early
Retiring earlier than expected may explain why millions of Americans claim Social Security before reaching their “full retirement age,” or the age at which they are entitled to their full benefits .
Retirement experts generally urge Americans to to wait for to claim Social Security for as long as possible because of the financial benefits of waiting. Workers can apply for a retirement benefit as early as age 62, but the tradeoff is about a 30% reduction in their monthly checks compared to waiting until full retirement age. which is 66 or 67 years old depending on the year of birth.
But the median age at which Americans apply for Social Security benefits is 63, Transamerica found in its survey of more than 2,400 retirees. That means many older Americans are locking themselves into consistently lower monthly checks throughout their retirement years.
On the other hand, waiting until age 70 to collect Social Security – the maximum age to claim benefits – increases a person’s monthly benefits by more than 30%. Despite this incentive, Transamerica found that only 4% of retirees wait until age 70 to apply for their benefits.
“One of the most important things they can do is understand their benefits and whether they have options to extend those benefits,” Collinson said. “If it’s a spousal situation, perhaps if they need income, one claims first and the other later, or if they can re-enter the workforce and hit the pause button on Social Security and get more income.”
Another reason to apply for Social Security early is likely that many retirees don’t have enough money saved in a retirement fund to stay afloat. Only about half of U.S. retirees participated in a 401(k) or similar plan throughout their working career, while more than one in four said their employer never offered them retirement benefits while working. “They were working,” Transamerica noted.
About 6 in 10 retirees cited Social Security as their primary source of income, underscoring the program’s importance to older Americans. In comparison, only about 1 in 10 people said retirement accounts like 401(k)s or IRAs would be their primary source of income.
Challenged but happy
Despite the challenges, many retirees are enthusiastically considering retiring from work, the study found. Nearly 9 in 10 people describe themselves as generally happy and having close relationships with family and friends.
“One of the things that stands out is that retirees are really enjoying their retirement time, which I think bodes well for all of us,” Collinson said. “They have made some adjustments, particularly to their financial situation, and overall they are doing well.”
Americans “dream of retirement,” she added. “Retirement is more about freedom and the ability to spend your time as you want, rather than financial freedom specifically.”
