When planning for retirement, it's important to understand where your income will come from. Knowing all of your possible sources of retirement income will help you accurately determine how much of your money needs to come from retirement investments you make throughout your career.
Unfortunately, the majority of Americans are anticipating some of their income will come from continuing to work well into their traditional retirement years. While working into your 60s and 70s may seem like a good plan -- especially if you're struggling to save enough to ensure a secure retirement -- it's a plan that's unlikely to come to fruition for the vast majority of future retirees.
And if your retirement security is based on the idea you'll still have a salary coming in, you're going to be in dire straits when you find out that working during retirement isn't in the cards for you.
Most Americans think they'll keep working in retirement
According to a study from the Transamerica Center, 55% of current workers plan to work in retirement, with 14% anticipating working full-time and 41% reporting they'll maintain part-time positions. Another 17% of Americans aren't sure if they'll continue to hold a job or not, and just 28% said they won't continue working after hitting retirement age.
While the vast majority of future retirees may envision themselves heading to the office, the reality of current retirees suggests this is really unlikely. In fact, Transamerica Center reported last year that just 7% of current retirees do some type of paid work. This discrepancy between those who intend to work and those who actually do can likely be explained by these facts: Many older workers are forced out of the workforce by health issues, a lack of job opportunities, or the need to care for ailing loved ones.
Not only do many retirees end up unable to keep working well into retirement, despite their plans to do so, but it's also very common for older Americans to be forced to retire earlier than expected. In fact, while 54% of workers expect to work past the age of 65, the average retirement age reported by current retirees was just 61.
Why it's a problem if you plan to work but can't
If you're planning to work in retirement just to keep busy or to pursue a career you're passionate about, it may be a letdown if you can't fulfill this dream -- but it won't be a disaster.
Alas, many people who plan to work into their 60s and beyond don't have this goal because they just love their jobs so much. Instead, many would-be future retirees don't think they'll have enough money to retire if they have to leave the workforce early. And, sadly, they're probably right. Americans have too little retirement savings and aren't putting aside enough income for the future -- especially considering that life spans are getting longer and projected returns on future investments are smaller.
If you think you'll have income coming in from work during retirement, or that you have more years to work and save because you won't leave the workforce until late, you may not be as aggressive about setting aside money today for retirement. And by the time you hit your 60s and realize you can't work anymore after all, it will be too late to amass a big nest egg that will see you through into your 80s and beyond.
How you can avoid making this mistake
If you're among the majority of Americans planning to work into your retirement years, you can avoid putting your future financial security at risk by making retirement savings plans as if you won't work at all.
You should calculate the amount you need to save for retirement as though your only sources of income will be your investments, your Social Security, and any employer-provided pension available to you. To be on the safe side, you may even want to anticipate that you'll claim Social Security benefits at 62, which means those benefits will provide a lower monthly income than if you work longer.
This will raise your target savings amount to ensure you have enough money to live on, even if you're forced to leave the workforce early. If it ends up that you're able to earn income during retirement, or retire late in your 60s instead of leaving work at 62, you'll simply have extra spare cash -- and that's a much better situation to be in than having too little money to live on.
Don't count on working during retirement
Since the statistics are clear that working during retirement isn't likely, counting on income from employment is a major mistake. Fortunately, by understanding early the obstacles to working into your 60s and 70s, you can change course, increase your savings goals, and ensure you have the funds you need. If you're struggling to hit your updated savings target, check out our guides to increasing retirement savings, to help you find some spare cash to put aside for the future.