The introduction to one of my recent MarketWatch RetireMentors columns, You Need a Plan to Retire Before You Plan to Retire, stated the following fact of which most people aren't aware:
"You're not going to retire when you plan on retiring. You're probably going to retire earlier."
The article cited results of two recent well-known and respected annual studies that demonstrated that there's a good chance that you will retire before you expect to do so.
The Employee Benefit Research Institute (EBRI) Retirement Confidence Survey has consistently shown an increasing trend in the percentage of people retiring earlier than planned since 2007. Per the 2014 survey, 49% of people retired earlier than planned, 38% retired about when planned, and only 7% retired later than planned.
Results of the Gallup 2014 Average Actual vs. Expected Retirement Age Survey for the last 13 years have found that the average expected retirement age among non-retirees has consistently exceeded the average actual retirement age among retirees by four to seven years. 2014 was no exception when the average expected retirement age among non-retirees was 66 vs. average actual retirement age among retirees of 62.
Why did 49% of people surveyed by EBRI leave the workforce earlier than planned? While some retirees gave positive reasons for retiring early, many cited negative reasons for doing so. The top three were as follows:
- Health problems or disabilities (61%)
- Changes at companies, such as downsizing or closure (18%)
- Having to care for spouses or other family members (18%)
Why Plan for a Specific Retirement Age?
As emphasized in several of my posts, including the last one, Do You Want to RAP or Do You Prefer to RIP?, retirement planning is unquestionably the most difficult type of goal-oriented financial planning. Knowing that there's a 50% chance that you will retire earlier than expected, often for reasons beyond your control, and that the average actual retirement age among retirees is 62, why bother planning to retire at a specific age?
While you may retire earlier or later than planned, that's no different than other types of financial planning where actual results are generally different from those that were planned. Furthermore, this knowledge doesn't negate the need for planning, especially when it comes to retirement income planning where the fear of running out of money can cause many sleepless nights without proper planning. If anything, it emphasizes the importance of having a retirement income trigger, or age at which you would like to retire, and reinforcing your plan by including a premature retirement strategy.
Increase Your Odds for Success
You don't have to be average. If you want to improve the likelihood of retiring at your planned retirement age, consider working with a financial adviser if you aren't doing so already. As pointed out in my July 11, 2013 MarketWatch RetireMentors article, Retire Confidently With a Written Plan, the value of working with a financial adviser and having a written retirement income plan is reinforced by the numbers of individuals who retire voluntarily versus involuntarily.
Citing the results of the 2013 Franklin Templeton Retirement Income Strategies and Expectations (RISE) Survey, the article stated that 74% of those currently working with an adviser retired by choice. In addition, per the survey, only 18% of those working with an adviser expected running out of money to be their top concern during retirement.
Three Questions to Ask Yourself
If you're planning for retirement, here are three questions you should ask yourself:
- What is your planned retirement trigger?
- Do you have a written retirement income plan for your trigger?
- Are you working with a financial advisor who specializes in retirement income planning?