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The Problem with Planning to Retire Later

Retiring later is a great way to reduce the chance that you’ll run out of money during retirement. The math behind it is straightforward and foolproof: Each additional year you work is one more year to accumulate savings and one less year of spending from your savings.

That said, there’s some danger in creating a financial plan that relies on a later-than-average retirement. The problem, as you’ve probably guessed, is that retirement isn’t always a choice.

In fact, in a recent survey from the Employee Benefits Research Institute, 50% of retirees surveyed indicated that they left the workforce earlier than they had planned. And of those who retired earlier than planned, only 8% cited exclusively positive reasons. In other words, 46% (almost half!) of retirees surveyed said that they retired earlier than planned, and negative reasons played a role in their leaving the workforce.

Job Security Only Goes So Far

The survey found that:

  • 21% of retirees who retired earlier than planned cited changes at their company (e.g., downsizing or closure) as a reason for retiring,
  • 34% cited other work-related factors, such as a change in the required skills to do their job,
  • 51% cited health problems or disability, and
  • 19% cited having to care for a spouse or other family member.

When I read this, I was surprised to see that the biggest factor wasn’t job related at all. Health — both your health and the health of your loved ones — appears to be the biggest factor. The takeaway: Even if your job security is ironclad, you still might not want to assume that you’ll be able to continue working as long as you would like.

Other Ways to Avoid Running Out of Money

If your retirement savings are not what they should be, it makes perfect sense to adjust your plans to include a late retirement. But it would be wise to take others steps as well. For example:

  1. Find ways to cut your spending so you can save more per year,
  2. Hold off on claiming Social Security benefits so as to increase your guaranteed, inflation-adjusted income, or
  3. Annuitize part of your portfolio once you reach retirement in order to increase the amount you can safely spend per year.

(Note that I did not mention increasing the risk level of your portfolio as a solution. While it might work, it’s not something I would recommend because it can backfire in a dramatic way.)

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  1. One critical point implied but not directly stated in the above survey is the problem (exacerbated in this economy) of age discrimination. The person earning a high income at age 60+ is much less likely to find an equally well paying job than someone 20 or even 10 years younger. Even though age discrimination is illegal, it’s no secret that employers will shy away from hiring the person over about 55 because of assumptions that they will be set in their ways, obsolete in their skills, too expensive, etc.

    Age discrimination is not practiced at my own company, where the president is one year older than I and there is one full-time employee aged 72. But I know perfectly well that if my position or the company were to end, I would never (at age 63.5) find comparable full-time work again.

  2. Mike,

    This is a great article. I had a family member who died from cancer in his 60s. One of the shocks was just how long he was sick for (a decade), and how his illness destroyed his ability to work. He was self-employed, so he did not have a clean break from employement the same way that a regular full-time employee would. But he was essentially unable to work during most of this time.

    Also, there seems to be a typo in this post. “…played a roll…” should probably be “…played a role…”.

  3. Indeed. Thank you for catching that.

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