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Retiring at 65 was already becoming a fading tradition before Covid-19 sank the world’s economy.
Now, that traditional retirement age could fall further by the wayside as workers pick up the pieces once the economy gets going again.
A survey from Allianz Life Insurance Company finds that half of Americans retired earlier than they expected. A majority of respondents said that they did so for reasons outside of their control, with 34% citing job loss and 25% health-care issues.
The online survey was conducted in January, well before the U.S. economy came to a halt due to the coronavirus. But the results still point to a trend that may be amplified in the current economic conditions.
“Right now, people are fearful of the future,” said Kelly LaVigne, vice president of Consumer Insights at Allianz Life. “Are the jobs going to come back? Nobody can really predict it.”
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In the U.S., the idea of retiring at 65 has been tied to certain benefits. It’s the age at which individuals generally become eligible for Medicare. For many Americans, it also used to be when they could receive full retirement benefits from Social Security.
For most retirees today, the full retirement age for Social Security is either 66 or 67, depending on the year in which you were born. However, many people still erroneously believe they are eligible for both Social Security and Medicare at 65, as a quiz from MassMutual showed.
Still, research has pointed to Americans’ plans for extending their working years. A majority of workers — 54% — said they plan to either stop working after age 65 or never retire at all, according to a study published last year by the Transamerica Center for Retirement Studies.
Now, retirement experts believe the post-coronavirus economy will affect retirees in one of two ways: They will either have to retire earlier than expected or they will have to work even longer to catch up.
Careers cut short
“My best guess is it’s going to lead to people retiring earlier,” said Alicia Munnell, director of the Center for Retirement Research at Boston College.
Many individuals may simply not be able to find the career opportunities they need to keep working.
That could hit older workers especially hard, particularly those who counted on the gig economy to fill income gaps.
“If there’s a lot of folks looking for employment, it might be hard for them to find that opportunity,” said David Blanchett, head of retirement research at Morningstar.
Around the world, that could lead many workers to draw from their pensions earlier, Munnell said. And in the U.S., it will likely prompt more people to start claiming Social Security retirement benefits at 62, the earliest possible age, she said.
However, that will lock those individuals into permanently reduced benefits.
“For the rest of your retirement period, you have a much lower income than you would have had otherwise,” Munnell said.
Working years extended
Other workers may seek to work longer to help replenish the retirement funds they’ve lost in this downturn, provided they can stay employed.
“Working longer is kind of one of the best options,” if you have the ability to do so, Blanchett said.
Older workers may be confronted by difficult questions. If you lose your job, can you find another one? If you still have work, will your wages go down because of increased competition for those positions?
Admittedly, we may not know how this downturn will affect us for another 10 years, or perhaps even decades, Blanchett said.
The current experience highlights one key truth about preparing for retirement: The further ahead you plan, the better shape you will be in if an unforeseen downturn like this happens again.
“Saving for retirement earlier is a good thing,” Blanchett said. “No one that was born 64 years ago who’s about to retire has control over what happened today.”