Financial Planning, Retirement, Economy

Postponing Retirement Is Not Always An Option

1/20/21 8:00 AM

In the United States the traditional age of retirement has long been considered 65 since this was for many years when a person could start receiving their full Social Security benefit, but over the past two decades more and more senior Americans have continued to work well past the age of 65. However, this burgeoning trend came to a sudden halt in 2020 because of the coronavirus and COVID-19’s elevated severity among the elderly population which forced many older Americans in this high-risk group to either move up their retirement timetable directly due to the pandemic or indirectly as a result of greatly reduced employment prospects. Recent vaccine breakthroughs, though, confirm that this crisis should be transitory, and as of December old-age labor force participation was already well off of the H1 2020 low. In fact, even after the winter flareup in the coronavirus nearly one out of every five adults age 65 or older was still a member of the workforce at the end of last year, according to the latest job report from the Bureau of Labor Statistics, and this ratio is even higher after excluding older individuals physically unable to work.

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Assuming the pandemic is fully brought under control this year then it is still possible for earlier Labor Department projections to be achieved, i.e. nearly a quarter (23 percent) of all Americans ages 70-74, and 14 percent of adults ages 75-79, could still be a part of the U.S. civilian labor force in 2024, basically double the proportions seen in 1994. Such estimates are supported by an updated Transamerica study which found that even after last year’s COVID-related disruptions more than two-thirds (68 percent) of surveyed Baby Boomers still plan to work past the traditional retirement age of 65, including 16 percent who do not expect to ever retire. For some Americans, continuing to work after the age of 65 will be because they are passionate about their profession or simply have a desire to stay active, e.g. many respondents across all surveyed age groups said that during retirement they plan to “pursue an encore career,” “start a business,” and/or “continue to work in the same field.” For other Americans, though, continuing to work in old-age will be a necessity because they must earn a few more years of income to make up for inadequate retirement savings. That is not a bad idea considering that an analysis by the Urban Institute estimated that working for just five more years could result in as much as a 56 percent increase in retirement income based on the incremental net wealth accumulated. However, as sadly too many learned last year it can be financially dangerous to assume that delaying retirement and continuing to work will always be an option.

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A pre-COVID report from Prudential, for instance, found that of the 51 percent of surveyed retirees that retired earlier than planned, only 23 percent did so by choice. Forty-six percent of those who retired earlier than anticipated instead did so due to health problems, 30 percent were laid off from their jobs or offered an early retirement incentive package, and 11 percent left work to take care of a loved one. Perhaps even more alarming is that in the past we learned how both blue-collar and white-collar occupations already face age-related employment challenges, but a more recent study from Boston College’s Center for Retirement Research suggests that such problems could be even greater than previously estimated due to the rise of robots, artificial intelligence, and other forms of automation in the decades ahead. Altogether the above research shows that even before the coronavirus appeared an inability to continue working in old age was a risk Americans should have already considered (and planned for). Perhaps the best way to hedge against such longevity challenges is to strive to save as much money for retirement as possible. Utilizing tax-advantaged vehicles like 401(k)s, IRAs, and HSAs can provide additional help, and the sooner one can start the better because compound interest and other investment returns over long time horizons are among the most powerful ways to ensure a comfortable and financially secure retirement.

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Sources: U.S. DoL, SCL, TCRS, The Urban Institute, Prudential, CRR

Post author: Charles Couch

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