Are you planning on delaying your retirement? Workers are trending in that direction. Labor force participation numbers have been increasing over the past two decades, as have average retirement ages.
U.S. Census Bureau information shows that after a short dip to an average retirement age of 62 for men in the 1980s, the average retirement age rose to 65 by 2015. Female retirement rates have been on a sharper rise due to higher workforce participation, topping age 62 in 2015.
Why are we working longer? A recent paper published by the National Bureau of Economic Research (NBER) suggests four possible reasons.
1. Higher Education – We've become a more educated workforce over time. As a result, people are starting careers later in life and extending their careers proportionately. In addition, our economy has shifted from labor-intensive manufacturing to more of a service economy – and many remaining manufacturing jobs are less physically strenuous due to automation and other workplace improvements.
In short, people may be putting off retirement because they're starting later and are physically able to do so.
2. More Women in the Workforce – The NBER paper cites research that working couples tend to retire at close to the same age. Combine that conclusion with the increase of women in the workforce, and it's likely that a decision by one spouse to retire later affects the other.
Some women may be working longer to build their own retirement savings. They could be catching up for time taken off due to caregiving duties or compensating for lower salaries throughout their career. (While the gender gap is closing, women still earned 82 cents on average for every dollar that men earned in 2017.)
3. Defined Contribution Plans – In past years, the primary retirement plan was a traditional pension – a defined benefit plan that paid a given monthly amount upon your retirement.
Today, most retirement programs are defined contribution plans such as 401(k) plans that are mostly (or entirely) funded with money by employees. These plans are dependent on the amount of money the employee puts in and the return on the 401(k) investments, making them less predictable for income. There's greater incentive to work longer and add more of your salary to your defined contribution program.
4. Social Security Changes – People may be working longer to get their full benefits or receive credits for delaying retirement.
While you can draw Social Security as early as age 62, you must wait until your full retirement age (FRA) to receive your full monthly benefits. In 1983, Congress extended the FRA to adjust for longer life spans. The FRA went from age 65 to age 66 for those born between 1942 and 1954. Beginning for those born in 1955, the FRA increases by two months until it reaches age 67 for those born in 1960 and beyond.
In addition, you can receive an extra 8% in monthly benefits per year by delaying your retirement until age 70. Americans who have little retirement savings may work longer to maximize Social Security benefits.
There may be other reasons for extending your retirement: you may decide to work longer to support a better retirement lifestyle, or you may simply just enjoy your work. Alternatively, you may have health problems that force an early retirement.
Regardless of your retirement decision, make sure it is backed up with a solid retirement plan based on expected retirement income, your plans, and the corresponding expenses. With proper planning, you'll only delay your retirement if you want to – not because you have to.
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