The typical American retires much earlier than he or she expects, and often not by choice, according to new research from the Transamerica Center for Retirement Studies.
The average retirement age in the U.S. is 62, with nearly six in 10 retirees telling the research firm that they left the workforce earlier than planned. Nearly half of these people said the reason was related to health problems, such as physical limitations or disabilities. Losing a job or an organizational change at their employer were among the other reasons why people stopped working before planning to retire.
“Financially insecure”
The findings underscore the fragility of retirement in the U.S., with older Americans often retiring before they are financially ready to call it quits. And because many people outlive previous generations – the typical respondent told Transamerica they think they will live to be 90 – they are also faced with the prospect of being able to financially support themselves for decades in retirement, easily draining their savings. can deplete or even deplete.
“Many of them are financially insecure. If they were to have a major financial shock or if their health were to deteriorate and they needed long-term care, they would have a hard time affording it,” said Catherine Collinson, CEO and president of Transamerica . Center for Retirement Studies, CBS told MoneyWatch.
The research supports previous research on the typical retirement age, with the nonprofit Employee Benefit Research Institute finding earlier this year average retirement age for Americans it is 62. That underlines the gap between pension plans and reality business leaders and policy experts often urge Americans to work longer so they can save more for their old age—a strategy that often doesn’t unfold as expected.
Retirees having to leave their jobs earlier than planned is a “cautionary tale for people currently in the workforce,” Collinson said.
People need to actively maintain their health and keep their skills up to date, while also educating themselves about retirement and financial planning, and socking away savings, she noted.
Why Americans claim Social Security early
Retiring before anyone expects it could explain why millions of Americans are claiming Social Security before they reach their “full retirement age,” or the age at which they are entitled to their full benefits.
Pension experts generally urge Americans to do so hold off to claim social security for as long as possible because of the financial benefits of waiting. Workers can apply for retirement benefits as early as age 62, but the tradeoff is a reduction of about 30% in their monthly checks compared to waiting until full retirement age, which is 66 or 67, depending on a person’s year of birth.
But the average age at which Americans claim Social Security benefits is 63, according to a survey of more than 2,400 retirees. That means many older Americans are locking themselves into permanently lower monthly checks during retirement.
On the other hand, waiting until age 70 to collect Social Security benefits – the maximum age to claim benefits – results in a more than 30% increase in monthly benefits. Despite this incentive, Transamerica found that only 4% of retirees wait until age 70 to file for benefits.
“One of the most important things they can do is fully understand their benefits, and whether they have options to extend those benefits,” Collinson said. “If it’s a spousal situation, if they need the income, they can file a claim first and the other later, or if they can get back to work and hit the pause button on Social Security and can get more income.”
Another reason to rely on Social Security early is likely that many retirees may not have enough money saved in a retirement fund to keep them afloat. Only about half of U.S. retirees participated in a 401(k) or similar plan throughout their careers, while more than one in four said their employer never offered retirement benefits while they worked, Transamerica found.
About six in 10 retirees cited Social Security as their main source of income, underscoring the program’s importance to older Americans. By comparison, only about 1 in 10 said retirement accounts such as 401(k)s or IRAs would be their main source of income.
Challenged but happy
Despite the challenges, many retirees are optimistic about taking a step back from work, the survey found. Nearly 9 in 10 describe themselves as generally happy and have 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, especially 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 their time the way they want, rather than specifically about financial freedom.”
