Retirement timeline, expectations are outdated
Hans Rosling’s 2018 book “Factfulness” brought attention to many elements of life around the world that are better than most people perceive. Substantial improvements have been made in extreme poverty, life expectancy, education of girls and many other quality-of-life measures. The reason Rosling felt the need to raise awareness about these improvements is that so many people hold views based on decades-old data and assumptions. In Rosling’s surveys, even well-educated academics, business, and political leaders struggled to identify the current state or established trend of many important topics.
Rosling does not cover retirement expectations of Americans in his book, but upon reading it and thinking about how it applies, I think many people’s perceptions similarly are based on an outdated view of life. You should think about retirement differently than your parents or grandparents.
When the Social Security Act was signed by President Franklin D. Roosevelt in August 1935, the average life expectancy of Americans was 61. Few people were expected to live all that long collecting retirement payments. As dramatically as life expectancy and the vibrancy of older age have improved, the idea of retirement still follows similar timelines.
Financial advisors have suggested for a long time that people wait to take Social Security, but the majority (57 percent) of recipients claim benefits before their full retirement age (66/67). By far, the most popular starting age for Social Security benefits is when first eligible at 62 (34 percent) even though starting at 62 causes a significant permanent reduction of payments for life. For most people, waiting for larger payments will ultimately mean more cumulative income if they live beyond about age 81.
When Social Security began in 1935, there were 37 working Americans for every retiree who would be drawing benefits. That ratio is now 3-to-1 and declining.
By 2030 – when everyone in the Baby Boom Generation will have reached 65 – the U.S. Census Bureau projects that for the first time in history, people over 65 will outnumber children (18 and under) in the United States. Consistently over the next four decades, the number of working-age adults will shrink compared to the number of retirees.
In the U.S., 31 percent of people over age 65 are still in the workforce. The numbers are lower in Europe but higher in Asia. Between now and 2024, the U.S. Bureau of Labor Statistics projects that, by far, the fastest growing age segments of the workforce will be people 65 to 74 and 75 and up.
The demographic numbers support the idea that retirement expectations need to be redefined.
As the population tilts toward “seniors,” it could put a strain on employers and create more opportunities for older workers to be imaginative about how they phase into retirement. The Harvard Business Review and the Center for Retirement Research at Boston College each published work recently examining ways to incentivize longer working careers and make them more attractive to the employee and the employer. For some people, this will allow maximization of Social Security and help reduce a savings gap that leaves many people financially unprepared to retire. For others, this will create new ways to utilize better the knowledge, experience, and skills of the older people who may be financially prepared for retirement but still crave a connection to meaningful work.
Some people need to be given permission to keep working beyond the traditional retirement age. You don’t have to follow norms that haven’t changed as the makeup of society has.
Many people enjoy the social interaction of the workplace and the opportunity to contribute. Engaging in thought and activity can keep people cognitively sharp later in the life. If employers are to embrace the contributions of experienced, older employees, they’ll need better policies to accommodate workers who may not want to work full-time but can add value.
Given longer life expectancies and more time to work later in life, I expect that we’ll see more people changing the timeline or trajectory of their careers. Some people will become more comfortable taking sabbaticals mid-career to travel or try something different. They may go back to school or choose to re-route to an important life experience – knowing it will be a better experience now rather than waiting until retirement and hoping to still be able to do it.
Preparing financially earlier in life will allow more people to be creative with what they really want to do. The more financially prepared they are, the more they can make the outdated view of career path and retirement date optional.
Clearly, some people have difficulty delaying retirement because of their health or their work is too physically demanding for their age. But many people are just stuck with a mindset based on misguided math and outdated expectations about retirement.