How Long Will Retirement Be Delayed

Until recently, the average retirement age in the U.S. was 62 and declining. The average age for retirement has been rising for at least 10 years. In the wake of the financial crisis of 2008, a high percentage of people now expect to work longer than previously expected and beyond age 65. There’s a lot of talk about people working forever or until they no longer can work.

A more meticulous approach to the issue is taken by the Center for Retirement Research at Boston College. It’s new report concludes that while most Americans are not prepared for retirement at age 65, they can quickly put their finances in shape. The study concludes that 85% of households will be financially ready for retirement by age 70. So working another five or six years is all most households will need, and of course many will be able to retire sooner.

This result is consistent with research from T. Rowe Price that concludes most people can substantially improve their retirement finances by working just two or three additional years. The reason most surveys have people saying they’ll work beyond age 70 and perhaps forever is that few people bother to do a realistic analysis of how much money they’ll spend in retirement and how much they’ll need to finance that. A little bit of planning improves confidence and retirement readiness.

The steep improvement in readiness from ages 62 through 70 and the leveling off thereafter (shown in Figure 2) reflect the importance of Social Security and the pattern of its benefit payments. Social Security benefits increase by about 8 percent per year between ages 62 and 70, due to the actuarial adjustment before the Full Retirement Age of 66 and the Delayed Retire-ment Credit between 66 and 70.9 After 70, initial Social Security benefits remain constant in real terms. In contrast, financial wealth (both inside and outside of defined contribution plans) grows at 4.6 percent per year until retirement and then stays constant in real terms.10