Are You Thinking About Retiring Retirement?

More Boomers plan to work well past "normal" retirement age, a shift that will affect everyone.

Retirement is one of the most significant life transitions, and current Senior "retirees" and the 78 million Baby Boomers just behind them are re-writing the rules. No longer satisfied with just a retirement dinner and commemorative watch, then endless days of golf, or arts and crafts at the local Senior Center, many of us want a lot more out of our "golden years." In fact, many of us aren't planning to retire anytime soon -- if ever.

The experts are baffled but they really shouldn't be; this has been coming for a while. After nearly a century of dropping, the male retirement age hit a low of 55 in 1980 -- but it has been moving slowly in the opposite direction ever since. People are retiring a little older each year. The important question is, "Why are Boomers delaying retirement?"

A new image of the retiree has emerged. Nearly 80 percent of pre-retirees say they plan to keep working and earning in retirement, but will do so by working part-time and cycling between periods of work and leisure, creating a new model of retirement. Looking at national surveys by American Association for Retired Persons (AARP), Boston College's Center for Retirement Research, MetLife, and Merrill Lynch, many people intend to keep working. On average they expect to "retire" from their current job or career at around age 64, then launch into an entirely new job or career. About half of the retirees in one survey plan to continue working into their 70s and beyond, with 17 percent intending to never retire.

The most common reasons for staying in the labor force given by people age 41-59 were:

  • to stay mentally active -- more than 60 percent
  • for the money and to stay physically active -- more than 50 percent
  • to stay connected with others -- more than 39 percent
  • for the health benefits -- 37 percent
  • to provide a sense of identity or worth -- 39 percent
  • to provide new challenges -- 35 percent

What we know for sure

  • Over the next 25 years, 78 million Americans will reach the traditional retirement age. These individual, known as Baby Boomers (born from the end of World War II to 1964) represent the largest identifiable social group in American history.
  • Approximately 8,000 Americans turn 60 each day. Already, 2.8 million Boomers have passed that mark. More than 37 million Americans are now aged 65 and older, according to the U.S. Census Bureau, and that number is expected to nearly double by 2030 as Boomers continue aging.
  • Of people currently "retired," 25 percent are actually working.
  • A national survey of 400 private employers revealed positive perceptions about employees 55 and older. Employers view older workers as more productive than younger employees, but also more expensive, and generally just as "attractive."
  • Two-thirds of people who expect to work in some capacity during their retirement years would prefer to change jobs and work a flexible schedule.
  • More than 80 percent of Boomers believe they will need more money than their parents' generation to live comfortably in later life, but only 39 percent think they are planning and saving adequately for that reality.
  • Some (currently 17 percent but growing) cite the commitment to caring for their aging parents and supporting "boomerang" children or grandchildren as the reason for needing more money.
  • Almost 60 percent of Boomers anticipate inadequate health coverage for themselves and their families in later life. This is based on a longer life expectancy, the sheer size of the Boomer generation, and the shortcomings of Medicare.
  • Today's retirees are better educated than previous generations. But many Boomers are not taking the steps they need to achieve financial security once they retire. It is estimated that half of all Boomers now in their 50s will lack the resources to retire at the same age as did similar workers in the past. This bad news confirms concerns about retirement prospects. An estimated 60 percent of those who are unprepared for retirement may want and need to remain on the job longer -- at least two years longer to add significantly to their retirement income and financial security.

What we think we know

Boomers are increasingly anxious about retirement due to the rising cost of living, health care, and the desire to maintain their lifestyles. Social Security, employer sponsored defined benefit pensions, employee 401(k) plans, and personal savings will give Boomers much less financial support than was the case for earlier retirees.

Full Retirement Age -- Here is how your birth year affects the age at which you can receive full U.S. Social Security benefits.
Year of Birth Full ("normal") Retirement Age
1937 or earlier 65
1938 65 and 2 months
1939 65 and 4 months
1940 65 and 6 months
1941 65 and 8 months
1942 65 and 10 months
1943 - 1954 66
1955 66 and 2 months
1956 66 and 4 months
1957 66 and 6 months
1958 66 and 8 months
1959 66 and 10 months
1960 or later 67
If you were born on January 1st of any year you should refer to the previous year. If you qualify for benefits as a Survivor, your full retirement age may be different. The earliest you can start receiving Social Security retirement benefits will remain age 62. -- U.S. Social Security Administration

Boomers can't claim Social Security full benefits until age 66, or for younger Boomers, age 67. For any given age, the Social Security policy yields lower benefits relative to pre-retirement income.

In addition, benefits relative to pre-retirement earnings have declined because more wives are working. This outcome is virtually inevitable in a system that only provides a 50-percent spouse benefit. Although women increase the family's income while they are working, this often fails to increase the couple's actual Social Security benefit in retirement.

Boomers will rely primarily on 401(k) plans, not traditional defined benefit pensions in retirement. But on average, Boomers have not yet accumulated large 401(k) balances. For workers in their 50s, median 401(k) assets, including IRAs, are around $60,000. Improving the situation requires reducing debt, saving more, and working longer. If Boomers delay retirement, obviously they get more time to contribute to all of their retirement resources, their assets have more time to accumulate investment earnings, and they reduce the time in retirement when they must rely on these assets for support.

The new Delayed Retirement Credit of Social Security cause monthly benefits to increase as retirement is moved from 62, the earliest age when a worker can make a claim, to 70, the latest age. Each year a worker delays taking Social Security benefits increases the benefits by seven to eight percent. A two-year delay increases benefits by 15 percent, and a four-year delay adds one-third to the monthly benefit payment.

Give this some thought

Only 24 percent of employers say they are prepared for Boomer workers to retire. More than one third of companies admit they haven't really thought much about it.

If Boomers are going to extend their careers, employers need to provide opportunities to stay on-the-job at least two to four years longer, and offer financial incentives that contribute robustly to Boomer retirement security. However, in one 2007 national survey of 400 employers, only 44 percent are very likely to do so for half the employees who want to stay on; 30 percent are somewhat likely; 25 percent are unlikely. In the same survey, companies are more likely to accommodate older workers if they expect business growth, value the institutional knowledge or "brain trust' of their older workers, and generally have an older workforce.

Conversely, employers that perceive older workers as costly, or who operate in a business environment where the pace of technical change is slow, are less likely to accommodate older workers. Surprisingly, factors not deemed important to accommodating older workers are employer size, type of worker (rank and file vs. white collar), traditional retirement age for a specific company or industry, and type of industry (goods vs. services firms).

Phased retirements, in which individuals are helped over a period of time to transition to retirement are still experimental. Only about 10 percent of current retirees have used this option, even though the potential benefits for employees, employers, and society are highly touted. Three-fourths of companies with this option do it informally on an employee-specific basis. Also, significant impediments make this approach difficult, including employee selection, pension issues (which might need a legislative fix), health insurance rules, and work hours flexibility vs. labor laws.

While growing older and facing health challenges as a group, 63 percent of Boomers feel more vigorous and younger than they are. Studies of healthy aging suggest that working to an older age could have a number of positive psychological and physical health effects for many people. One big benefit is continued social engagement and maintaining friendships. Working longer appears to help maintain a sense of purpose. There likely are also health benefits in continuing to work in activity-demanding jobs.

New retirement model

What does all of this mean?

  • All of us -- retirees, families, younger people in the workforce, employers, government -- must adjust to the new retirement paradigm.
  • There will be fewer retired people on the golf course and in other leisure activities, and more of us working, commuting, spending, and being active adults.
  • The career ladder for many younger workers might be more difficult to climb, and take a bit longer.
  • Employers need to plan on having older workers around longer, contributing to the enterprise beyond the traditional retirement age.
  • It means America is changing. We are retiring "retirement"!

Stephen F. Barnes, Ph.D., is a professor at San Diego State University and co-founder, along with Patrick Davis, of the Institute for Applied Critical Thinking, a non-profit organization focused on helping Boomers develop the skills they need to transition into retirement — or not.