The traditional retirement age could be falling by the wayside as workers pick up the pieces once the economy gets going again. Based on your work prospects, you may retire either much earlier or later than you planned.
Older workers may be confronted by difficult questions. If I lose my job, can I find another one? If I still have work, will my wages go down because of increased competition for those positions? Should I just retire earlier than I planned? Can I afford to retire early?
“No one that was born 64 years ago who’s about to retire has control over what happened today.” -David Blanchett of Morningstar
A survey from Allianz Life Insurance Company finds that half of Americans retired earlier than they expected. A majority of respondents said that they did so for reasons outside of their control, with 34% citing job loss and 25% health-care issues.
Though this survey was taken in January, before the rise of COVID-19 and the U.S. economy crashed, the trend of unplanned retirement is amplifying due to the current and escalating economic health conditions.
In America, the idea of retiring in your 60s has become typical because of the benefits. Medicare deemed age 65 to be when one receives certain retirement benefits. You can apply for Medicare within 3 months of turning 65. For many Americans, Social Security benefits also can come into play as early as age 62.
But there are major misconceptions about Social Security retirement benefits. MassMutual created a 10 question quiz and over half — 52 percent — of 1,500 Americans approaching retirement failed or barely passed.
Quiz your retirement knowledge
In response to discouraging quiz results, financial planning consultant and Social Security expert at MassMutual, David Freitag, said, “We’re getting the message out that there are choices, and people have to really understand what the future would hold for them relative to Social Security planning. The bad news is that we still have a lot more to do.”
You may want to brush up on your knowledge of the ins and outs of Social Security before you claim your retirement benefits.
Curious to know your Social Security IQ? You can take the quiz here.
The big question: “Should I retire early?”
“If there’s a lot of folks looking for employment, it might be hard for them to find that opportunity,” said David Blanchett, head of retirement research at Morningstar. If you have the ability to do so, “Working longer is kind of one of the best options,” Blanchett added.
Around the world, that could lead many workers to draw from their pensions earlier. “My best guess is it’s going to lead to people retiring earlier,” Alicia Munnell, director of the Center for Retirement Research at Boston College said. Munnell added that in the U.S., it will likely prompt more people to start claiming Social Security retirement benefits at 62, the earliest possible age.
However, that will lock those individuals into permanently reduced benefits.
“For the rest of your retirement period, you have a much lower income than you would have had otherwise,” Munnell said.
Plan, plan, plan
Admittedly, we may not know how this downturn will affect us for another 10 years, or perhaps even decades, Blanchett said.
The current experience highlights one key truth about preparing for retirement: The further ahead you plan, the better shape you will be in if an unforeseen downturn like this happens again.
“Saving for retirement earlier is a good thing,” Blanchett said. “No one that was born 64 years ago who’s about to retire has control over what happened today.”
Check out Morningstar’s podcast and hear David Blanchett discuss his research on retiree spending patterns, asset allocation, and mitigating the risks in a plan during the COVID-19 pandemic.