July 26 , 2016 — A recent study of those who are about to retire vs. people who have already retireed reveals a sobering fact – pre-retirees tend to dramatically underestimate when they will retire. That underestimate is huge – between 5 and 7 years. While it displays a healthy desire to keep working, it does not appear to be realistic, given the experience of those who have retired before them.
The main finding of the study is that in the USA actual retirees saved, on average, 28 years for retirement. Pre-retirees, however, say they will save for 35 years, 7 years higher. To some extent the higher figure reflects caution and better savings intentions. But for most of them, the study concludes, it is wishful thinking.
The survey, “Future of Retirement – Generations and Journeys” was done by HSBC and covers many other retirement issues. While some people are happy to retire before their planned start date, many are not. A big reason why is that missing out on years of work means more meager retirement savings, 401(k) balances, Social Security payments, and pension payouts. And that usually results in a retirement that is not as financially secure as planned.
Many reasons why you might retire sooner than you think
This is not the first study that reports people tend to retire sooner than they say the plan to (see Further Reading below). The reasons for earlier than planned retirement are often beyond workers’ control. All kinds of issues can drive folks in their late 50s to retire before their stated goal in the 60s.
– Health issues – A stroke, injury, or serious illness could end your working days
– Termination and layoffs – Your job looked secure one moment, the next you are on the street
– The retirement of a spouse – You might decide to join him or her and be retired too
– A change in management or boss – Perhaps there was a merger, or the colleague you never liked takes over the reins
– Need to take care of a spouse or parent – Sometimes the only solution is for you to quit work to take care of them
– Moving to a new location – Perhaps you have to move for health reasons, or you want to be near grandchildren
– Time to call it quits – The stress of your job or boredom makes you quit
The “Future of Retirement – Generations and Journeys” survey also highlighted a number of other facts about retirement preparation. One of those is number of years Americans spend working vs. workers in the rest of the world – we work 35 years on average vs. 30 years for the rest of the world. Another is the small but significant part of America’s working population that has not started saving for retirement at all – 17% for women and 10% among men. A huge percentage (44%) of pre-retirees who wish that they had started saving earlier. Men start saving on average at age 29, but women push this out even longer, to age 34. The survey also found that while most working people (59%) rate financial security as one of their most important life goals, only 22% have ever received any advice or information on how to do it.
So what can you do to prepare – in case you end up retiring sooner rather than later?
The evidence is clear that unanticipated factors bring about early retirements. The best plan is to try to prepare for this event, which can have devastating implications. The study recommended four steps for a financially secure retirement:
1. Map out all your retirement expenses. Many people overlook paying off their credit card or other debts, for example. Extra health care expenses are bound to happen as you age, yet most people do not allow for them
2. Save early and often for retirement. The sooner you start, the more you will have and the more it can grow.
3. Get professional advice. Most people don’t try to doctor themselves or be the architects for their homes – they rely on a professional. Finding a good one takes some work, but it can pay off.
4. Get ready for the unexpected. No matter how meticulous your budget preparation (and most people’s are anything but), there will be bills you hadn’t considered – like a child or grandchild who has an emergency, a big medical expense, need for a new car, un-reimbursed damage to your home, a new roof or air conditioning system, etc.
Comments: When do you plan on retiring? Or if you already did, was it when you thought you would? What kinds of factors might make you retire earlier or sooner? Please share your experiences in the Comments section below.