Retire Better: You may be working a lot longer than planned — blame COVID-19

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Even in 2019 B.C. (Before Coronavirus), millions of Americans were filled with anxiety about retirement. Would they really be able to stop working? Would they outlive their savings? What about the steady rise in healthcare costs? On and on. 

Not surprisingly, the upheaval caused by the pandemic has added to this uncertainty. Nearly a quarter (24%) of Americans say they now plan to retire later then previously expected.

On the other hand, one in nine (11%) are more fortunate: They now plan to retire earlier than expected. Lucky them. 

The data, from a study by Northwestern Mutual, the Milwaukee-based insurance giant, says that among those who think they’ll have to delay retirement, 39% think they’ll now have to work an additional three to five years. Another 35% think they’ll have to work for another decade or more.

And while the study doesn’t say this, I will: some Americans may wind up working until the very end of their lives. For them, the dream of retirement could remain just that: a dream.  

The reasons for delaying retirement come as no surprise.

  • Wanting to work and save more: 55%

  • Concerns about rising and/or unexpected medical costs: 50%

  • Having to dip into retirement savings: 24%

  • Taking care of a relative/friend; responsible for additional dependents: 14%

As for the small minority who now think they can retire earlier than expected, here are the reasons given: 

  • Wanting to spend more time with their loved ones: 42%

  • Focusing on hobbies/priorities outside of work: 33%

  • Realizing their personal mission is more important than saving more: 29%

  • Work situation has changed (laid off, etc.): 28%

This last bullet point is particularly interesting. Some workers are retiring earlier because they’ve lost their jobs. But this doesn’t mean they were financially ready to retire; what it does mean, however, is that if they’re younger than 62—the minimum eligibility age for Social Security—they’ll have to deplete their personal savings to get by. But if they’re 62, or even a bit older, taking Social Security before full retirement age means they’re getting less than they’d be entitled to if they waited. So being able to say you’re retired “early” may prove, for some, to be financially challenging.

Meanwhile, Northwestern Mutual’s data appears to show quite a gap between expectations and reality.

On average, people think they’ll need more than $1 million in net assets—$1,047,200—to retire comfortably, That’s up 10% from last year’s estimate of $950,800. That’s the expectation.

Here’s the reality: On average, people have $98,800 saved for retirement, up from $87,500 last year. The bottom line: the average person surveyed by Northwestern Mutual has about 9% of what they think they’ll need to retire comfortably. No wonder so many expect to be working for years to come. 

Not surprisingly, this dovetails with pessimism about the future viability of Social Security. Nearly one-fifth (19%) of those surveyed say it is “not at all likely” that Social Security will be around when they retire, and 43% say “they can imagine a time when Social Security no longer exists.”

Let me jump in here with my own view on Social Security. I’ve written before—and as recently as last week—that Social Security isn’t going away. But based on present trends, future recipients may face sharp cuts—perhaps as much as 22% as early as 2034.

Maintaining full benefits would require tax hikes or expanding the workforce. The former is politically painful; the latter would require a reversal of the low U.S. birthrate or the admittance of new immigrants to pay into the system. So I think the binary view — either Social Security will either exist or it won’t — is the wrong way to see this.

The better question is more nuanced: What will future payments to recipients be, based on demographics and future taxes? How these dynamics play out in coming years will determine everything.