Americans are now retiring three or four years later in life
than they did three decades ago, puzzling researchers and reversing a trend
that had lasted more than a century.
Several recent studies have confirmed this shift. Gallup
found that from 1991 to 2022, the average U.S. retirement age rose from 57 to
61. The American Enterprise Institute said that from 1990 to 2019, the age rose
from 62.6 to 65.6. And the Center for Retirement Research, a non-profit
research group at Boston College, focused solely on male workers but reached
largely the same conclusion: From 1991 to 2021, their average retirement age
climbed from 61.9 to 64.7.
What makes this so startling is that for about 100 years,
history had been moving in the opposite direction. Starting in the 1880s,
American men began retiring younger, possibly thanks to generous pensions
awarded to Civil War veterans. In the 20th Century, as the social safety net
expanded — first with Social Security in 1935, then with Medicare in 1965 —
workers continued to end their careers earlier in life. The average retirement
age kept lowering until the 1980s, when it slowed to a halt. Then, in the
1990s, it suddenly started climbing back up.
There have been some exceptions. From 2019 to 2021, the Pew
Research Center saw a slight increase in the number of Americans aged 55 to 64
who are retired, from 16.6 to 17.1%. But as Pew noted in its own report, this
was a short interruption of a 30-year trend, and was most likely tied to the
short-lived pandemic recession of 2020.
The bigger picture is that Americans are retiring later in
life, after a century of retiring earlier. What could explain this? Studies
point to a number of social and economic changes, as well as cuts to social
safety net programs. Here's a look at some of the biggest factors:
Social Security-checks
Social Security checks are printed at the U.S. Treasury
Philadelphia Finance Center in Philadelphia, Pennsylvania on February 11, 2005.
Photographer: Dennis Brack/Bloomberg NewsDennis Brack/Bloomberg News
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.
"From my perspective, it is being whittled away,"
Ron Mastrogiovanni, CEO of the research group HealthView Services, said of
Social Security. "As time went on and the program got into financial
difficulties, they would make changes to the program… As it keeps getting cut,
it keeps getting tougher for those folks who are in retirement."
Meanwhile, other tweaks incentivized retiring later. In the
1970s, Social Security introduced the Delayed Retirement Credit, which offers
increased benefits for those who retire after the FRA. And in 2000, Congress
repealed the so-called "earnings test," an income threshold that many
saw as a penalty for working in old age.
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. That means the majority of them received reduced benefits.
The 401(k) revolution
Another factor is a generational shift in how Americans plan
for retirement. Starting with the baby boomers, Americans have largely switched
from defined-benefit plans, like pensions and annuities, 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.
The difference is significant: 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.
"It's not an automatic retirement paycheck that starts
at age X," said Frank O'Connor, vice president of research at the Insured
Retirement Institute, a trade group and lobby. "One [defined-benefit] is
an income payment, and the other one [defined-contribution] is just a pile of
savings and you have to figure out what to do with it."
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.
Health insurance
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,
the study said: the longer they keep working, the longer they stay covered.
"If they stay with their employer, they continue to
receive health insurance; if they leave… they are forced to purchase insurance
on their own," the study said.
Americans become eligible for Medicare at age 65. Many wait
to retire until then, in order to avoid leaving a gap in their health coverage.
Healthier retirees
Another reason for retiring later is simple: Americans are
living longer, healthier lives. According to the Center for Retirement
Research, the life expectancy for men aged 65 and older has increased by about
3.7 years since 1985 — around the time retirement ages stopped going down.
"We're living a lot longer," Mastrogiovanni said.
"When [Social Security] was first put into place, people were not living
into their 90s."
That longer life expectancy reflects better health, which
the study found was strongly correlated to later retirement. As one might
expect, men with healthier bodies and fewer disabilities tended to stay in the
workforce longer.
Added to that, today's jobs are generally less physically
strenuous than in the past. Since the 1980s, manufacturing in the US has
declined and the service industry has soared, creating more desk jobs that men
can continue doing in their later years.
Marriage
The Center for Retirement Research study focused on men, but
women do play a role in delaying their retirement.
Many couples prefer to retire at the same time, and wives
are typically younger than their husbands — by about three years, on average.
This means that as more women joined the workforce over the past century, more
and more of them began to push their husbands' retirement age back a few years.
The husband of a woman retiring at 62, for example, might decide to retire in
the same year, when he is 65.
"The increased percentage of married women working
means the decision to retire involves both spouses," the study said.
Overall, the picture the study paints is clear: Americans
typically want to retire together with their spouses, with enough money in the
bank and their health expenses covered. If they have to wait longer to get
that, they will.
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