The Retirement Reality Gap

LJSphotography/Alamy The new post-Great Recession economy has taken its toll on retirees, as well as those of us looking forward to retirement in the near future. Unfortunately, there's something of a reality gap between what today's workers think about retirement and what actually happens in retirement. Here's a look at the perceptions and the realities. Today, many people plan to delay retirement. According to a 2013 survey by the Employee Benefit Research Institute of 1,000 individuals age 25 and older, some 22 percent of workers said the age at which they expect to retire has increased. Respondents cited a poor economy and the inability to afford retirement as their main reasons for the delay. Almost 10 percent of workers said they'll never retire. At the same time, the number of people expecting to retire early, before age 65, is just about half of what it was 20 years ago. The gap: People retire sooner than they expect. Almost half of retirees surveyed reported that they retired sooner than they had planned. Those who retired early cited a number of reasons. A few retired because they could afford it. But many more cited a layoff, health issue or disability. Baby boomers feel younger than they really are. According to a 2012 AARP-sponsored poll of 1,852 registered voters, including 1,331 age 50 and older, health and longevity are not topics that often come up in conversation among baby boomers. Only about half of those nearing retirement said they had discussed the issues of poor health, disability and death with their spouse or doctor. And according to a 2009 Pew Research Center survey of nearly 3,000 adults, boomers felt at least 10 years younger than their actual age. They peg "old age" at somewhere above 75. The gap: The biggest reason for early retirement is an unexpected health issue. According to the EBRI survey, 55 percent of those who retired earlier than planned say they did so because of a health problem. An unforeseen illness can disrupt your retirement dreams and cause other complications. For example, if you think you'll work until age 75, you might not consider things like long-term health insurance. According to the U.S. Department of Health and Human Services, someone turning 65 today has almost a 70 percent chance of needing long-term care services. Today's workers plan to work part time in retirement. Almost three quarters of people now holding a job said they expect to work after they retire to supplement their income, according to the EBRI survey. Over half admitted that they are counting on income from a part-time job to be a significant source of income in their later years. The gap: Only about 25 percent of retirees report that they are actually working in retirement. The reality is that many retirees want to keep working part time for their old employer, but their old employer doesn't need their services. Or they want to find a consulting job, but discover that their experience is not relevant in the current marketplace. Many find that the majority of help-wanted opportunities are minimum-wage jobs in retail or hospitality, and they decide not to work after all. If you do want to work part time in retirement, the best time to find the job is before you retire. Workers are aware that they are left largely to their own devices to save for retirement. Multiple surveys have shown that workers have lost faith in Social Security, know that defined-benefit retirement plans are on the wane and that they should take advantage of various retirement accounts such as 401(k) plans and individual retirement accounts. Major financial firms including Fidelity and Aon/Hewitt recommend saving up to 10 times your annual income, which along with Social Security should allow you to replace approximately 85 percent of your preretirement income. The gap: People fall far short of their savings targets. According to a 2013 study by the National Institute on Retirement Security, 45 percent of working-age households do not own any retirement account assets. And two-thirds of older households ages 55 to 64 have retirement savings of less than one time their annual income, which is far below what they need to maintain their standard of living. A little over a third of retirees say a pension provides a significant amount of their income. Still, some 70 percent of Americans credit Social Security for their main source of income, according to the EBRI survey. The solution. There is often a major difference between what people expect in retirement and what they actually get. As you go about planning your own retirement, pay attention to the gap -- the one that can be caused by a layoff, unexpected health issue or unfamiliar job market. And make plans to close that gap.