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When It Comes to Retirement, 65 is More Moving Target than Magic Number

When It Comes to Retirement, 65 is More Moving Target than Magic Number
Posted on Monday, March 2, 2020 by Rae Shanahan

Ah, retirement, that glorious moment after decades of working when people say good-bye to the daily grind and embark on a life of well-earned relaxation.


There are long walks on a pristine beach, leisurely rounds of golf and even drinks with those cute little umbrellas. At least, that’s what retirement looks like in the stock photos we’ve all seen—and potentially envied.

The real images of retirement are very different and varied because people’s experience is highly individualized. The days of the “typical” retirement with the gold watch and big send-off are no more. And, that impacts employers who may be bracing for a mass exodus of Baby Boomers that isn’t quite materializing as expected. Instead of the mass exodus, some employers are actually grappling with late retirements.

That’s because they are not behaving like their counterparts in previous decades, and their relationship with and participation in the workforce is different. Many Boomers are turning their backs on conventional retirement.  

Statistically, 10,000 people in the US turn age 65 every day, which underpins the expectations around mass retirements for employers. Certainly, some employees retire at 65. However, by this age a good number have already left the workforce for various reasons including poor health, caregiving responsibilities, or plain old early retirement. The trend-bucking reality is that almost half of Boomers plan to continue working at least part time past normal retirement age, leaving the workforce later or potentially not at all.

All this variety complicates workforce management and succession planning. When employees all punched the clock for the last time at age 65, employers could manage the countdown to them leaving in a linear way, with clear benefits milestones related to healthcare coverage, Medicare eligibility and retirement accounts.

However, when employees retire early or intend to stay longer, either full- or part-time, that makes planning significantly more challenging.

So, why all the variations on the retirement theme? Why has the notion of retiring at 65 eroded over time?

There are several reasons, and here are three of them.

  1. The disappearing pension. Because pension plans are required to have a maximum normal retirement date, and that can’t be greater than 65, pension plans had a way of reinforcing retirement at 65.

When you worked for an employer your whole career and had a pension that kicked in at 65, that’s when you expected to retire. And, pension plans were common. Back in 1975, 88% of private sector employees and 98% of state and local government employees had a pension. So, a lot of expectation was set around age-65 retirement.

Today, only 13% of private sector employees participate in a pension plan. (By contrast, 77% of state and local government employees have a pension.) Outside of those in public service, a small minority of the workforce has the expectation of collecting a pension at age 65. Over the years as pensions have become the exception rather than the rule, this has shifted the parameters and expectations around when to retire. 

  1. Lack of financial preparedness. Many employees have simply not saved enough for retirement. Over time, much of the responsibility for retirement funding has shifted to employees as defined contribution plans replaced defined benefit pension plans. Despite sometimes generous employer 401(k) matches, plan design techniques like auto enrollment and escalation and ongoing education and communication about the importance of saving, employees are still falling short of the mark. As a result 56% of Baby Boomers have saved less than $100k for retirement and 39% justifiably are concerned they will run out of money in retirement.

    While lack of financial resources is a powerful incentive to continue working, so is a lack of benefits. For those younger than 65, options for high-quality, affordable healthcare outside of employer-sponsored coverage are limited. The best route to benefits may simply be to continue working.

  2. Changes in Social Security payouts. Normal retirement age (NRA) for Social Security is increasing (for people born in 1955 it’s 66 and for those born 1960 or later it’s 67). Currently, more than a third of people take their Social Security early at age 62, which is 36 months before age 65, even though that translates into a decreased benefit.

    However, as the NRA rises, those cashing in early will face even steeper reductions for benefits claimed at age 62, which is more than 36 months before normal retirement age. With a normal retirement age of 67, someone claiming benefits 36 months before NRA would be 64. If that employee begins taking Social Security at 62, their benefit will be reduced by a third, which may be a powerful inducement to stay on, especially when people are so concerned about their retirement preparedness.

Because the workforce is comprised of people with unique experiences, wants and needs, it’s always evolving. Add demographic and social trends to the mix and HR and benefits pros are managing an ever- shifting set of norms. Retirement is no different. Prior generations tended to leave the workforce by 65 and for some employees this is still the goal. While many continue to retire before 65, more are planning to work longer into their golden years, whether it’s full- or part-time, or maybe even on a gig basis.

Across the workforce, people have different expectations and plans around retirement, and it’s important to understand the trends to more effectively manage the current and emerging employee population.

For more statistics about social and demographic trends impacting the workforce, check out our infographic or our white paper.