Between inflation being at record-high levels and the recent stock market volatility, more seniors approaching retirement age are considering the option to retire later in life.
According to a new Gallup survey, which interviewed 1,018 adults in the U.S., the average reported retirement age has increased from age 57 — where it was in 1991 — to age 61 in 2022. The survey also showed that individuals’ planned retirement ages increased as well, from age 60 in 1995 to 66 in 2022, revealing a trend in which people are retiring later and expecting to work longer.
Select spoke with Jeffrey M. Jones, Ph. D., a Gallup senior editor, about the reasons why people might be retiring later or planning to do so.
Retirees can wait longer to collect Social Security
Jones attributes this trend of higher retirement ages and expected retirement ages to three factors: An increased full retirement age for Social Security, a longer average life expectancy and higher living costs and medical expenses.
He believes seniors may be retiring later, or at least expecting to retire later than they did in the 1990s, because of changes that were made to the full retirement age needed to receive Social Security benefits.
While retirees are able to collect Social Security benefits starting at age 62, they will receive a reduced monthly benefit — in order to get 100% of your monthly check, they’d have to start collecting benefits at full retirement age, which is between the ages of 66 and 67 for those born after 1943.
In 1983, the Reagan administration raised the full retirement age for Social Security benefits from age 65 to 67 due to funding issues, a change that would be phased in over the span of the next 22 years.
Retirees who delay the collection of their benefits beyond their full retirement age can end up receiving an increased benefit. For every year you put off collecting after full retirement age — up to the age of 70, that is — you’ll receive 8% more in benefits. That means retirees have a chance to earn 132% of their benefits by waiting just a few more years, depending on their full retirement age.
Despite the advantages of delaying benefits or waiting until full retirement age, the majority of seniors end up collecting their benefits early. According to the Congressional Research Service, in 2021, 29% of new beneficiaries claimed retirement benefits at age 62.
People are living longer than they used to
The second factor that may affect retirement ages and planned retirement ages are changes regarding the average life expectancy.
According to the Social Security Administration, when Congress increased the full retirement age from 65 to 67 in 1983, it did so, in part, because of longer average life expectancies. In other words, most people currently approaching retirement age should plan for this time of their life to encompass nearly 20 years — in 2019, the average expected life expectancy for a 65 year old man was age 83.3, while for women, it was 85.7.
“I think people realize that they are living longer. If people retire around full retirement age, it might be a 20-year retirement,” says Jones. “Maybe 20 or 30 years ago, they lived 5 or 10 years [after full retirement age].”
Retirement costs are higher than they were in the past
The last factor that may impact expected retirement age is the higher cost of living and medical expenses.
The year-over-year inflation rate — as measured by the Consumer Price Index in June 2022 — was 9.1%, the highest it has been in more than 40 years. As a result, consumers are now paying more for everything from rent and groceries to gas.
Medical expenses are rising as well. Fidelity Investments found that, in 2022, a couple at age 65 can expect to spend a whopping $315,000 on healthcare expenses in retirement, reflecting a 5% uptick compared to the previous year’s rates. Increased living and health costs could also be influencing how long seniors choose to stay in the workforce.
As these everyday costs increase, it’s becoming more important to save for retirement on your own. Your first priority should be contributing enough to your 401(k) to ensure you receive your employer’s matching 401(k) contribution, if it offers one.
A traditional individual retirement account (IRA) or a Roth IRA can be a good choice for those who either don’t have a 401(k) or those who just want to set more aside for retirement.
Both are tax advantaged retirement accounts, though they have a few differences: A traditional IRA doesn’t have any income requirements and the money you place in it won’t be taxed until you take distributions in retirement. A Roth IRA, in contrast, is only available to single-filers making less than $144,000 a year or married couples filing jointly who are making less than $204,000 annually. However, any contributions you make are with income that’s already been taxed, and when you make withdrawals you’ll not pay any taxes on your gains.
