The average American retires at age 62, according to the results of a recent Gallup poll. That's up from age 59 in 2010, but it's four years younger than the age at which most non-retired Americans presently expect to retire.
Gallup's retirement survey consists of two parts. In the first part, it asks current retirees what age they retired at. In the second part, it asks non-retired Americans what age they expect to retire at.
As you can see in the chart below, the average person consistently overestimates how long they'll stay in the workforce by anywhere from four to seven years.
It's hard to pinpoint exactly what's behind the disparity between reality and perception when it comes to retirement age. On top of this, it's counterintuitive, as most younger people, anecdotally speaking, seem to be overly optimistic about their financial futures.
One reason may be that younger Americans don't fully appreciate the toll that working takes on their bodies. A study released last year by the Government Accountability Office sheds light on this.
According to the GAO, the biggest reason why people retire early is because of the nature of their work. For instance, blue collar workers were 55% more likely to retire early compared to the average person. By contrast, workers in managerial or professional jobs were 32% less likely to do so.
The explanation for this is simple. As the GAO noted, 61% of people who held a blue-collar job at age 60 through 62 reported their job was "physically demanding and/or involved heavy lifting most or all of the time" compared to 25% of those in other occupations. It should go without saying that spending more than three decades in a physically demanding job takes its toll, particularly when you've reached your 60s.
A second reason why people overestimate the age at which they'll retire likely stems from the interplay of Social Security and human emotions. Countless studies have shown that humans aren't designed to be patient. We crave immediate results and gratification.
This tendency, for instance, leads investors to trade in and out of stocks rather than simply holding on to them. The net result is that the average investor underperforms the broader market because they incur higher trading costs and therefore can't fully realize the time value of money.
Consequently, when people become eligible to take Social Security at age 62, which is the earliest age at which you can do so, it seems reasonable to conclude that many of us can't wait to begin receiving monthly checks. But there are two problems with this.
First, if people retire four years earlier than they had planned, then the amount of time they have to save for retirement is significantly reduced. This goes a long way toward explaining why well over half of Social Security beneficiaries receive 50% or more of their income from Social Security despite the fact that Social Security generally pays a much smaller portion of their pre-retirement income.
Second, by taking benefits early, you decrease the size of your monthly check. If you claim benefits at 62, for instance, they'll be roughly 25% smaller than they would be if you waited until age 66 to apply. This isn't necessarily bad, but it can be if you're not otherwise prepared for retirement.
The net result is that most of us would be smart to change our predictions about retirement. Instead of assuming that you'll retire later, thereby potentially delaying your preparations, you should plan as if you'll retire at, say, age 60 or younger.
