Retirement is an important milestone in everyone's life, and most people plan for years in anticipation of the day on which they leave their jobs for the last time. With many policymakers looking with concern at the need for retirees to have enough financial resources to last for decades after they stop working, though, some believe that the best answer to making sure that people don't run out of money in retirement is to work longer.
To assess the latest trends in retirement, Alicia Munnell at the Center for Retirement Research at Boston College recently took a look at work trends dating back to the 19th century. What she found was that after seeing a steady decline in average retirement ages among men between the 1960s and the 1990s, workers of both genders have tended to retire later over the past 20 years. Let's take a closer look at how and why the retirement age has varied over time and what it means for you and your retirement decision.
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The average retirement age for American men and women
The average retirement age for men in 2013, the most recent year for which data are available, was 63.9. For women, the average retirement age was younger, at 61.9 for 2013. Those figures were mixed from the previous year, with men retiring at a slightly older age than in 2012, while women retired a bit sooner than in the previous year.
What's interesting is that the trend over the past 50 years has shown two definite trends, especially among men, where the demographic shift toward more women entering the workforce doesn't skew the data. In the 1960s, men tended to retire after age 65, but over the next several decades, early retirement became more common, with average retirement age dipping below 62 by the mid-1990s.
In the past 20 years, though, that downtrend reversed itself, and average retirement ages have sharply increased. They still lag well below their peak, but they've consistently remained near 64 for the past five years.
Why did Americans start retiring later?
To explain the recent rise in retirement age, Munnell made a number of observations. First, Social Security provisions that encouraged longer work, such as a less restrictive earnings test and the provision of delayed retirement credits for those waiting as long as age 70 to claim benefits, helped many people make the decision to work longer. In addition, with more couples coordinating retirement benefits, the incentive to delay Social Security also provides greater family benefits during a couple's joint lifetimes.
Impact of delaying retirement on monthly Social Security benefits. Source: SSA.
Also, changing trends in the workplace pushed retirement ages higher. The disappearance of traditional pensions and retiree health insurance benefits made people more reliant on their own financial resources, leading most to delay retiring for added security. Less physically demanding jobs overall helped raise average working ages, and better health and longer lifespans also made it possible for Americans to work longer.
The CRR study is consistent with other surveys that have looked at the question of when people retire. A Gallup poll last year found that the average retirement age rose for the third time in four years in 2014, climbing from 59 in 2010 to 62 last year . That accompanied similar rises in the ages at which younger American workers expect to retire. Gallup speculated on several possible causes, including the reluctance of Baby Boomers to retire, inadequate retirement savings, and poor economic circumstances.
When do you want to retire?
The CRR study concludes that encouraging people to work longer is the best way to secure your retirement. But what if you don't want to work any longer than necessary?
It's true that one easy way to make yourself more financially secure is to work longer. Every year you stay at your job is one more year in which your paycheck and job benefits cover your living expenses and allow you to set aside more savings for the future. Collateral benefits like higher Social Security payments from delaying retirement are just icing on the cake.
But those workers who want to retire before the average American does have another choice: boost their savings now in order to give themselves a larger retirement nest egg when they decide to end their careers. Consider: every dollar you save in your 40s could translate to between $2.50 and $7 when you retire, depending on how much your investments earn over that span. An early start can help you even more, as every dollar you save in your 30s could give you somewhere around $4 to $17 by the time you call it quits. Even with reasonably modest returns between 5% and 10% per year, your money can multiply several times over given enough time.
The decision of when to retire isn't purely financial, as various people have differing opinions about the role that their work plays in their lives. For those who want to be able to retire on their schedule, though, starting to invest for retirement sooner rather than later is the best way to keep all your options on the table.
