Why Continuing To Work Is Not A Good Retirement Strategy

By Linda Koco
AnnuityNews

Many affluent Americans are apparently in no rush to quit working. Nearly half of investors (45 percent) say they plan to work in retirement.

But advisors probably shouldn’t plan on a re-do of client retirement plans just yet, especially the section having to do with retirement income arrangements.

That’s because there is also mounting data showing that many Americans often do not work in retirement. In fact, many retire before their target retirement age. So, even though clients talk about planning to work in retirement, some probably won’t be able to do it.

Still, the discussion around working in retirement shouldn’t be written off. It has implications for not only insurance and financial advice but also for broader planning concepts and social policy.

The plan-to-work group

The newest plan-to-work findings come from the fourth quarter 2014 John Hancock Investor Sentiment Survey and researchers at Mathew Greenwald & Associates. The survey is a quarterly online poll of affluent investors who have a household income of at least $75,000, and assets of $100,000 or more. The November 2014 poll sampled views of more than 1,100 Americans meeting those criteria.

Of the almost-half who said they plan to work in retirement, 34 percent said they will achieve their keep-working goal by taking a new part-time job, and 29 percent predicted they would continue working at their existing job on a part-time basis.

The Hancock figures are strikingly similar to results in last year’s version of the survey. In the earlier poll, 44 percent of investors told Hancock researchers that they plan to work in retirement — 36 percent of them at a part-time job different from the one they held, and 28 percent at the existing job on a part-time basis.

Two surveys two years in a row with very similar findings provide compelling evidence that a lot of affluent Americans are optimistic about their ability to keep working beyond normal retirement age.

It’s encouraging too, because many of the reasons given for the plan-to-work intention had to do with lifestyle and enjoyment rather than financial pressure. For example, in the most recent Hancock survey, nearly three-fourths (70 percent) of investors said they want to keep working in retirement because it will help them stay mentally and physically healthier.

In addition, 60 percent said they want to work because they like feeling productive, half (51 percent) stated they would be bored without work, and a third (32 percent) said they enjoy their current job.

Financial issues did show up, though. Just over a third (35 percent) said they wish to keep contributing financially to their families, for example. But the big picture looks more like more confidence, security, and optimism than an overpowering need to work, at least for the affluent.

Do they do what they say?

However, the experience of those who have already retired suggests that plans to work longer may not always pan out. 

People tend to retire at a much earlier age than they say they want to retire, according to recent research from the Society of Actuaries (SOA).

For example, in 2013, the median age at which people actually retired was 58, said the SOA study on retirement risks among 1,000 retirees and 1,000 pre-retirees. That’s seven years younger than 65, the median age at which people said they want to retire.

In that survey, the household income of each group ranged from less than $25,000 to $150,000 or more a year, with the large majority in the $50,000 to $150,000 range. This means the SOA survey cast a wider net than did the Hancock survey, but the SOA data has some relevance here since it also includes more affluent Americans.

Similarly, LIMRA Retirement Research found that, in 2012, only 45 percent of Americans said they retired when they had planned.

Nearly half (49 percent) of more than 1,500 retirees reported that their retirement date was dictated by factors out of their control, said that 2013 report. The reasons? Health issues (17 percent), job loss due to layoff or employer buyout (14 percent), and negative work conditions (7 percent), LIMRA said.

MetLife picked up on the trend in a 2012 report on the first baby boomers to turn 65 — those born in 1946. The researchers found that, despite the popular belief that boomers would work well past the traditional retirement age of 65, these boomers were “retiring in droves.”

This finding was based on a study of more than 1,000 leading edge boomers. They reported household annual income of $15,000 to $100,000 or more, with the majority in the $25,000 to $75,000 range, and the largest percentage, by income segment, in the $100,000 and up group (23 percent).

According to MetLife, 59 percent of these 65-year-olds were already at least partially retired, 45 percent were completely retired, and 14 percent were retired but working part-time. Of those still working, 37 percent said they’ll retire in the next year and on average plan to do so by the time they’re 68.

Working in retirement is an important part of retirement today for many people, and deferring retirement can be an important risk management strategy, allowed the SOA researchers.

But they reiterated that pre-retirees expect to retire at a considerably later age than did retirees who have actually retired, and that the percentage of pre-retirees who expect to work in retirement and the percentage of retirees who actually do is also considerably different. This is not a one-time finding. Previous SOA surveys found the same, the researchers said.

A basis for discussion

It is likely that actual work-in-retirement experience varies by level of financial resources, health status, work opportunities, family structure and many other factors.

But the data from Hancock and the others may provide advisors with a basis for conversation with clients who entertain notions of working longer, never retiring or some other variation. If a client is making work-in-retirement the centerpiece of the retirement plan, or a major part of it, that client might benefit from hearing about the research in this area.

In any case, early planning and preparation would make it less painful if someone ends up being forced to leave the workforce earlier than planned, LIMRA researchers observed.

On the flip side, if someone is willing and able to keep on working for a few or several more years beyond traditional retirement age, that person may benefit from an even longer period of asset accumulation — as well as the stimulation derived from working.

The keep-working discussion may provide food for industry thought-leaders to ponder. As per the SOA report: “As the labor force ages, it will be increasingly important to the economy to have more older persons continuing to work.” A key factor in this is that “long periods of retirement are creating a major challenge with regard to the sustainability of employee benefit and social benefit programs.”

Putting it together, some people hope and intend to work longer than traditional retirement age, but advisors might need to help these clients factor into the equation that this might not happen. Meanwhile, government, employers and retirement plan providers might need to develop new expectations about older people working longer. These developing trends are bound to intersect.

Linda Koco, MBA, is editor-at-large for AnnuityNews, specializing in life insurance, annuities and income planning. Linda may be reached at [email protected].

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Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].