There's a Good Chance You Will Retire Earlier than Planned, by Scott Stolz, CFP, RICP (week 38)

 

When Social Security was signed into law in 1935, the age of sixty-five was set as the full retirement age.  Not long after, pension plans began to use sixty-five as the age at which benefits would be paid.  Following this trend, Medicare allowed enrollment at 65 as well.  Consequently, we now routinely think of sixty-five as the age at which people should retire.  But that’s not what happens in reality.  Studies have routinely concluded that the actual average retirement age is 61-62 years old - and typically not because people were financially able to retire.  A 2025 AARP study found that more than 1 in 3 people retired not out of choice, but because they had to.  Either for health reasons, family support reasons or because they lost their job (How Older Americans View the Labor Market).  Only 1 out of 5 retired because they had enough money to retire.

The message here is that while you might be planning for retirement at the age of sixty-five or older, that does not mean that plan will become a reality.  Life sometimes gets in the way.  Let’s face it.  Most employers are not looking to keep, let alone hire a bunch of 60-year-olds.  Older individuals might have a wealth of experience and knowledge, but younger people can typically be hired for less.  And if AI can provide the knowledge, then the only real advantage older workers have is experience.  The bottom line is that any retirement plan that assumes you are working until 65 or older needs to be flexible.

That same study found that in just the last 6 months, 7% of all retirees have unretired by returning to the workplace.  Of those that did so, almost half said they did so out of financial necessity.  In other words, they determined that they might not be “OK,” so they chose to go back to work. 

I can tell you from personal experience that your mindset changes when that paycheck stops.  As long as you have the peace of mind of getting a regular paycheck, you are more likely to order that desert, buy that pair of shoes you probably don’t really need and get those concert tickets despite the ridiculous Ticketmaster “service fee” (for which you get no service).  You also worry less about the short-term ups and downs of the stock market because you know you have time to recover from any losses.  In addition, each paycheck gives you another opportunity to add to that retirement account.  But once that paycheck stops you think twice about each expenditure and you worry about the size of your retirement portfolio.  In other words, you wonder if you will be “OK.”  Unless you’ve already created your own personal pension.  I take great peace of mind in knowing that between Social Security and the annuities I own, our essential expenses will be covered for as long as either my wife or I are alive.