Photo credit: www.kiplinger.com
The landscape of retirement is shifting notably for many Americans, as recent findings from the Center for Retirement Research indicate that the average age of retirement has now increased by nearly three years since the 1990s.
This trend poses challenges for the 59% of Americans surveyed in a 2024 YouGov poll who desire to retire before reaching the age of 65. The CRR has identified several influences contributing to this delayed retirement, notably the evolving roles of women in the workforce and changes in occupational structures affecting both genders.
In addition, the Center for Retirement Research has investigated whether these factors will persist in influencing older Americans’ decisions to extend their careers or whether they have reached their limits.
Trends in the Average Retirement Age
Between 1880 and 1980, there was a marked decline in workforce participation among older men. Initially, this was encouraged by pensions offered to Civil War veterans, which provided a financial safety net in later years. The growing affluence of Americans allowed many to enjoy more leisure time in their later years. Additional factors included a transition from agriculture to industrial jobs, where older individuals were less desired by employers, as well as the introduction of Social Security and Medicare benefits.
However, beginning in the mid-1980s, this trend started to reverse. Since the 1990s, a rising number of men aged 55 and older are remaining in the labor market. Trends indicate that both men and women began working longer during this time, which has ultimately pushed the average retirement age to 64.6—an increase of three years from 1990 and nearly matching levels from the 1960s.
Why Are Americans Retiring Later?
The Center for Retirement Research has pinpointed several reasons contributing to the trend of prolonged employment among older workers, including:
Incentives to Delay Social Security: Adjustments to the retirement age mean that only those born in 1943 or later can claim full benefits at age 66 or 67. Retiring earlier incurs penalties that lower monthly benefits.
Type of Pension: There has been a shift from traditional defined benefit plans to defined contribution plans. Many older workers find themselves deferring retirement because of insufficient savings, accounting for a notable increase in work among those aged 65 to 69.
Education: A significant rise in higher education has resulted in a more competent workforce; these workers are more equipped to remain engaged in employment longer, often seeking careers that are less physically taxing and more financially rewarding.
Improved Health and Longevity: Increased life expectancy means that workers need to have longer-term financial support; healthier workers are more inclined to continue laboring beyond traditional retirement age.
Rising Healthcare Costs and Reduced Insurance: Many older Americans must continue working to maintain health insurance, particularly before qualifying for Medicare at age 65.
Changing Nature of Work: With traditional manufacturing roles declining, a knowledge-based economy has opened more doors for older workers who may no longer be suited for physically demanding positions.
Joint Decision-Making: The rise in dual-income households often leads couples to synchronize their retirement plans. Husbands may wait to retire until their wives can also retire or claim Social Security benefits.
Non-Financial Factors: Enhanced health and wealth among older workers have fostered higher job satisfaction, encouraging many to remain in the workforce longer.
Average Retirement Age for U.S. Men and Women
Given the numerous motivating factors for continued employment, it is unsurprising that the average retirement age for both men and women has been pushed back. Women, in particular, have entered and remained in the workforce longer due to financial needs, leading to generational trends where each successive generation of women works more than their predecessors.
Will These Trends Continue?
Despite various factors encouraging delayed retirement, the Center for Retirement Research suggests that these trends may have reached their peak. For individuals born in 1960 or later, the full retirement age has been established at 67, and further increases would likely necessitate challenging legislation that may not gain popularity.
Most transitions from pension to defined contribution plans are complete, with a stabilization in the number of college graduates since 2000. Progress in life expectancy has slowed, and with the majority of employers ceasing to provide retiree health benefits, the momentum for continued increases in retirement age has diminished.
Consequently, researchers conclude that while the influences behind the uptick in older worker participation will persist, they are unlikely to propel further increases in the average retirement age.
What’s the Right Age for You to Retire?
The factors identified by the CRR resonate with many individuals, illustrating the substantial changes in retirement patterns. Ultimately, the decision of when to retire remains deeply personal. Some individuals may opt to leave the workforce early, while others with lucrative retirement plans may choose to stay until age 70, finding satisfaction in their work.
A potential variable in retirement planning is the unpredictability of stock market fluctuations and possible economic downturns, which could significantly impact those nearing retirement who have investments in equities.
Ultimately, determining the optimal retirement age hinges on personal financial readiness and having a structured plan for life post-retirement, guiding individuals to make informed decisions about their future workforce engagement.
Source
www.kiplinger.com