Delayed Retirements: 5 generations in the American workforce

June 26, 2023

Americans are retiring later in life, after a century of retiring earlier. What’s up? Studies point to a number of social and economic changes, as well as cuts to social safety net programs. As well as the almost last minute discovery by many that C.O.B.R.A. benefits only last 36 months, and they are expensive! Here’s a look at some of the biggest factors:

Changes to Social Security have been a major driver of delaying retirement, the Center for Retirement Research found. In the 1980s, Congress raised the program’s full retirement age from 65 to 67. This meant that for many Americans retiring earlier, benefits would be reduced. Today, for example, if a person born after 1960 tries to claim at age 62 instead of 67, he or she would lose $300 of a $1,000 benefit.

In spite of all this, most beneficiaries still claim Social Security before the FRA. In 2021, for example, 57% of new beneficiaries were under 66, the new FRA for that year, according to the Congressional Research Service .

We love our 401k’s: Americans have largely switched from defined-benefit plans, aka; pensions, to defined-contribution plans, like employer-sponsored 401(k)s and individual retirement accounts. In 1940, about 58% of American households had access to a defined-benefit plan, according to Center for Retirement Research data. By 1965, less than 5% did. With a pension, the worker knows exactly how much he or she will be paid in retirement. With a 401(k), the worker only knows how much he or she is saving. According to the Center for Retirement Research study, the reliable paychecks of pensions gave workers an incentive to retire sooner rather than later. Workers with 401(k)s, meanwhile, risk running out of money if they retire too early or in a down market. As a result, those with defined-contribution plans tend to retire one or two years later, on average, than those with defined-benefit.

Could this by why the number one concern for Americans and their retirement continues to be, outliving retirement assets?

We like our nice selection of employer provided benefits: One major consideration for anyone planning to retire is how they’ll pay their medical bills. Unfortunately, just as healthcare costs in the U.S. have skyrocketed, employer-provided health insurance for retirees has declined. This creates an obvious incentive for Americans to delay retirement, or, un-retire, the study said: the longer they keep working, the longer they stay covered.

As of 2021 something startling has appeared, we’re not living as long. Startling and puzzling as experts report Americans have typically lived longer, healthier lives. According to the Center for Retirement Research, the life expectancy for men aged 65 and older had increased by about 3.7 years since 1985 (up to 2020) — around the time retirement ages stopped going down. This aside for the moment, we know that 65 is the new 55! Longer life expectancy reflects better health, which the study found was strongly correlated to later retirement. Apparently, people with healthier bodies and fewer disabilities tended to stay in the workforce longer. That and the market has not worked out the way we all thought it would when looking back a few years.

Since the 1980s, overall manufacturing in the US has changed, with more opportunity for less physical work, creating more digital, or A.I. jobs that people can continue doing in their later years. It’s just a matter of mental capacity.

SUMMARY – Concerns & Questions:
  • If you are an employer – Have you given much thought to what an aging workforce means to you and your organization? Are you prepared to make the essential adjustments?
  • If you are an employer – Do you have a business succession plan that’s been updated since 2020?
  • If you are an employer – Do you have a plan to provide as much tax-free income as possible during your retirement?  What about the costs for long-term healthcare for you and your spouse?
  • If you are an employee aged 50+ – Where is that line when ‘Red Zone’ for pre-retirement (crucial years to make serious decisions about your future working years, etc.) starts?
  • If you are an employee aged 50+ – Do you understand the differences and the strategies between saving pre-tax and post-tax? Which are you doing now, and, later?
  • If you are an employee under age 50 –  Do you participate in your employer’s 401k? Do you contribute at least to the maximum employer match limit?
  • Do you have the correct beneficiary(s) on your life insurance, annuity, 401k, other financial accounts?
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