61: The Magic Retirement Age?

David Blanchett of Morningstar recently released a piece of research discussing the uncertainty of retirement age: The Retirement Mirage (pdf). I linked to it in the most recent roundup, but I wanted to highlight its findings, as I know that any single article in a roundup can be easy to miss.

Blanchett looked at 12 years of data from the University of Michigan’s Health and Retirement Study (HRS). The HRS is interesting because it tracks a large group of people (approximately 20,000) over a period of time, so you can see how people’s circumstances and views change over time.

Blanchett learned two interesting things from the HRS data.

First, he found that you’re likely to retire closer to age 61 than you think. In Blanchett’s words:

“According to the Health and Retirement Study data, planned and actual retirement ages align at 61, with those planning to retire earlier than that tending to retire later than expected, and those planning to retire after 61 tending to retire earlier than expected. In other words, actual retirement ages pull toward 61, with each retirement year planned before or after age 61 resulting in a half-year’s difference in actual retirement age. For example, someone who plans to retire at age 69 will likely retire at age 65 (69 – 61 = 8 × 0.5 = 4; 69 – 4 = 65)”

Of those planning an early retirement, many are ultimately unable to retire as early as planned.

And of those planning on working well into their 60s, many are unable to do so for one reason or another. (Alternatively, some people are probably retiring earlier than anticipated because they’re finding that they do not need to work as far into their 60s as planned.)

So, what might help us to predict who will be in the “retiring earlier than planned” or “retiring later than planned” groups? That leads us to Blanchett’s second noteworthy finding:

“The rich HRS data set allowed us to test more than a dozen factors, including general personal characteristics such as gender, marital status, and education, along with factors that might be expected to lead to retiring early, such as job stress level, how physical a job is, and whether health problems limit someone’s work. However, these factors had little or no predictive power on retiring early. The only factor that appeared to tell us much about when someone might retire was their planned retirement age and its distance from the previously noted ‘magic’ retirement age of 61. […] Not only do many people retire earlier than expected, but it’s nearly impossible to predict who will be part of this group.”

This obviously presents some challenges as far as retirement planning. But it also suggests a few financial/life strategies that are likely to be worthwhile.

If you’re planning an early retirement, keep your professional skills sharp, as there’s a good chance you’ll be working longer than you anticipate. Also, if you’re currently in the position of “grinding it out” at a job that you hate, with the hope of being happy once you achieve an early retirement, you may want to consider a different approach. “Just 2 more years” could well turn out to be 3, 4, or 5 more years. Focusing instead on making changes that allow you to be happy while still working is likely to be a good idea.

At the other end of the spectrum, if for example you are currently age 60 and planning to work until 68, socking away that last chunk of necessary retirement savings may be more urgent than you think. Retirement may ultimately be something that happens to you, rather than a decision you make.