Retirement timing decisions serve as the foundation of financial security and living standards in retirement. Yet, many workers base these important decisions on reasons other than their own financial circumstances.
Financial advisors are on the front line of trying to help people make better decisions. Given the importance of this issue, LIMRA Secure Retirement Institute compared retirement timing expectations with experiences to better understand retirement timing decisions.
Research shows that although the average retirement age has trended upward over the past 15 years, the dramatic predictions of 70 being the new 65 have not proven to be true. As of 2016, the average age at retirement is nearly 65 years old for men and 63 for women, according to the Center for Retirement Research at Boston College.
Despite gains in Americans’ average retirement age, there is a three-year disconnect between expectations and actual experience (See chart.) Although nearly 1 in 6 workers expect to retire at age 70 or older, only half as many retirees (8 percent) actually do so. Regardless of many workers’ best intentions, early retirement is common. More than half of all retirees said they retired earlier than planned; 44 percent of retirees aged 70 or older said the same.
These retirement timing trends are important because they affect retirees’ lifestyle outcomes. Two-thirds of those who retire when planned are confident they will live their desired retirement lifestyle. In contrast, 42 percent of those who retire early express the same confidence. Even controlling for wealth, retirees who retire when planned have greater confidence in being able to live their desired retirement lifestyles.
The impact of earlier-than-expected retirement timing is especially felt by households without financial advisors. Only 31 percent of unadvised retirees who retired earlier than planned are confident of living their desired retirement lifestyles. Compare this with 69 percent of advised retirees who also retired earlier than planned.
Because retirement timing is so important, which specific actions can you take to help clients?
1. Improve retirement timing expectations. Retirement does not have a finite price tag like some other financial decisions (such as buying a house); the cost fluctuates, depending on the saving and timing decisions that workers make. Offering clients scenarios that demonstrate the beneficial impact of delaying retirement on their retirement savings allows workers to consider more clearly not only the age at which they would like to retire but also how affordable their goals may be.
2. Plan for the possibility of early retirement. Since lost income during peak (or near peak) earning years can be detrimental to retirement security, preparing clients for this circumstance and developing a plan for the consequences is vital. Planning should also include discussions of potential employment outcomes since advised retirees are most likely to say a layoff prompted their early retirements.
3. Trigger earlier planning. Reaching a certain age is a common trigger for retirement planning. However, this often happens after age 55, which is too late for adequate investment course corrections. The most common trigger ages are 55, 60, 62, 65 and 70. These ages coincide with typical retirement ages as well as key benefits decision points. Client outreach should target earlier milestones to promote more comprehensive planning that can address risks (before and after retirement).
Our research shows that working with clients to develop realistic time frames for retirement and establishing strategies to mitigate the financial risks can help them achieve their desired retirement lifestyles.
Cecilia M. Shiner, FSRI, FFSI, ALMI, ACS, is an associate research director for the LIMRA Secure Retirement Institute. She is responsible for conducting various major primary research projects for the Institute. Cecilia may be contacted at [email protected]