The average American retires at age 62, according to the
results of a recent Gallup poll. That's up from age 59 in 2010, but it's
four years younger than the age at which most non-retired Americans presently
expect to retire. Gallup's retirement survey consists of two parts. In the
first part, it asks current retirees what age they retired at. In the second
part, it asks non-retired Americans what age they expect to retire
at.
The chart indicates that the average person consistently
overestimates how long they'll stay in the workforce by anywhere from four to
seven years. It's hard to pinpoint exactly what's behind the disparity between
reality and perception when it comes to retirement age. On top of this, it's
counterintuitive, as most younger people, anecdotally speaking, seem to be
overly optimistic about their financial futures. One reason may be that younger
Americans don't fully appreciate the toll that working takes on their bodies. A study released
last year by the Government Accountability Office sheds light on this.
According to the GAO, the biggest reason why people retire
early is because of the nature of their work. For instance, blue collar workers
were 55% more likely to retire early compared to the average person. By
contrast, workers in managerial or professional jobs were 32% less likely to do
so.
The explanation for this is simple. As the GAO noted, 61% of
people who held a blue-collar job at age 60 through 62 reported their job was
"physically demanding and/or involved heavy lifting most or all of the
time" compared to 25% of those in other occupations. It should go without
saying that spending more than three decades in a physically demanding job
takes its toll, particularly when you've reached your 60s.
Consequently, when people become eligible to take Social
Security at age 62, which is the earliest age at which you can do so, it seems
reasonable to conclude that many of us can't wait to begin receiving monthly
checks. But there are two problems with this. First, if people retire four
years earlier than they had planned, then the amount of time they have to save
for retirement is significantly reduced. This goes a long way toward explaining
why well over half of Social Security beneficiaries receive 50% or more of
their income from Social Security despite the fact that Social Security
generally pays a much smaller portion of their pre-retirement income.
Second, by taking benefits early, you decrease the size of
your monthly check. If you claim benefits at 62, for instance, they'll be
roughly 25% smaller than they would be if you waited until age 66 to apply. This
isn't necessarily bad, but it can be if you're not otherwise prepared
for retirement.
The net result is that most of us would be smart to change
our predictions about retirement. Instead of assuming that you'll retire later,
thereby potentially delaying your preparations, you should plan as if you'll
retire at, say, age 60 or younger.
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