Retirement Research Results and Recommendations

 

I recently attended several webinars and listened to several podcasts about issues related to retirement planning and personal finance issues in later life. Below are nine of my key take-aways:

¨     Plans Often Change- According to the 2021 Retirement Confidence Survey (RCS) from the Employee Benefit Research Institute (EBRI), workers said they plan to retire at a median age of 65 and retirees said they actually did at age 62. Thus, people don’t always end their careers when they plan to. According to the EBRI RCS, 46% of the retiree subsample said that they retired earlier than planned and 6% retired later.

 

¨     Waiting to Retire Has Benefits- In addition to providing more time to save money (e.g., in an IRA and/or a 401(k) or similar employer retirement savings account) and earn higher pension and/or Social Security benefits, working longer delays the need to take withdrawals from retirement savings and see balances decline. Postponing withdrawals from tax-deferred accounts also postpones income taxes due on these withdrawals

 

¨     Many Workers Want to Phase Out- According to the EBRI RCS, 51% of workers said that they expect to have a gradual reduction in their work hours over time (like a dimmer switch) instead of an immediate exit from the workforce (like an ‘on-off’ switch). Unfortunately, many employers and/or jobs are not set up to do this and phased retirements often do not occur. Once retired, most people stay retired. It is mostly a “full stop.” Workers who want to continue working often need to develop their own plans to “phase out.” It is risky to plan on continued income from work in later life and then not have that source of income that you are counting on.

 

¨     Certain Expenses Will Likely Increase- Among the budget categories for increased spending in retirement that many retirees do not fully expect are medical and dental expenses and income taxes for retirees with large savings nest eggs once required minimum distributions (RMDs) begin at or before age 72. Travel and entertainment costs and gifts are other household expenses that often increase and are underestimated.

 

¨     Spending Down Savings is Difficult- The EBRI RCS reported that 37% of retirees want to increase their assets during retirement and 42% want to maintain what they have for a total of 79% who want to hold on to their money. Their reasons mirrored those that I wrote about in my book Flipping a Switch: fear of the unknown (e.g., long-term care costs), desire to leave an inheritance, and not wanting to experience the psychological pain of loss that occurs when account balances go down after withdrawals are made.

 

¨     COVID-19 Had Mixed Impacts- A webinar speaker described “push and pull” effects arising from the pandemic. Some older workers had reasons to continue working longer than planned (e.g., more time to save and recover market losses, lenient employer work-from-home policies, and dashed travel plans resulting in a “I might as well just continue working” mindset). Other workers exited the workforce earlier than planned due to layoffs, fear of contracting COVID-19 at work, or a new mindset about priorities for how to spend their time.

 

¨     The Security of a Regular Income- Labor economist Teresa Ghilarducci noted on a podcast that knowing that you have enough money (whatever the amount) to last the rest of your life is more valuable than having that same amount of money in an account that you have to manage. There is much less stress when people know that they have “enough” and do not need to actively manage savings withdrawals.  Fear of running out of money to last their lifetime is a common fear of older adults.

 

¨     Hold Family Conversations- There are many financial issues in later life that require family communication, especially estate planning. As a conversation starter, list key financial data in a notebook or on a financial inventory worksheet. Next, find a quiet, dedicated time to discuss the information with family members. Use non-threatening language to overcome everyone’s reticence to discuss sensitive topics. For example, frame discussions with the mindset of “let’s take care of each other.”

 

¨     Two Regrets in “Old-Old” Age- A podcast speaker spoke about a study that asked 80- and 90-year olds for advice that they would have given to their “60-something year old selves.” Two big regrets surfaced from these elders: 1. They wished they had not bought so much “stuff” in their 60s because they are now running out of money and 2. They wished that they had not quit working as early as they did because they were bored.