These Factors Drive Americans to Retire Earlier Than Expected

The ages at which older Americans expect to retire cluster around two key federal retirement benefit claiming ages — the early retirement age for Social Security of 62 and the Medicare eligibility age of 65.

However, according to a new paper published by the Social Science Research Network, Americans actually tend to retire earlier than they expect on average, and a number of social and demographic factors can be shown to influence the actual retirement date. The paper was authored by four researchers including Europacifica Consulting’s Zhikun Liu and Naomi Fink, alongside David Blanchett of PGIM DC Solutions and Qi Sun of Pacific Life. The researchers used two data sets in their analysis, including the Prudential Financial Wellness Survey and the University of Michigan’s Health and Retirement Study survey series, which collects data from about 20,000 U.S. household members ages 50 and older every two years. According to the researchers, the new study demonstrates that, although there is generally a natural upward trend for older Americans with great longevity and higher full claiming ages for Social Security to progressively delay their retirement plans, this trend has no statistically significant relationship with the COVID-19 pandemic. Rather, the most significant factors influencing individuals’ expected and actual retirement decisions are health status, wealth level, age, marital status changes, mortality expectations, education levels, disability and major illness diagnosis. Focusing on these factors can help retirement advisors explore strategies to mitigate the negative consequences of gaps between retirement expectations and realities, the researchers conclude.

Setting Up the Analysis

As the authors spell out, arguably the most important retirement decision is when to retire, a factor over which a worker has possibly more control than others. In practice, individuals who want to maintain their desired standard of living when retired will need to accumulate sufficient financial assets with careful preparation and have a more realistic retirement age projection before the actual retirement. Conversely, the authors explain, if an individual does not demonstrate sufficient preparedness, their plans to retire at a given age may not prove achievable. Thus, the authors argue, a deeper understanding of the significance of retirement age expectations is needed for such preparations. According to the authors, previous studies investigated several socioeconomic and demographic factors that might potentially affect older American adults’ expected retirement age. For instance, using the 2006 and 2008 waves of the Health and Retirement Study, one analysis found that debt, assets, education, race, gender, marital status and income are all factors that are associated with participants’ retirement decisions. On the other side of the coin, other past studies found that the age of eligibility for retirement benefits has a significant impact on one’s actual retirement date. According to the authors, prior research also found evidence that labor market downturns, such as the global financial crisis and the COVID-19 pandemic, can accelerate retirement decisions. However, few studies have been published to examine the specific impact of the COVID-19 pandemic on older American adults’ retirement expectations, according to Liu, Fink, Blanchett and Sun. “More importantly, as [one 2023 study] pointed out, retirement is often a process instead of a one-time decision, and people’s retirement intentions change differently over time,” the authors explain. “To fill this gap, we explore the influence of the COVID-19 pandemic on expected retirement age.” Given the richness of the data at their disposal, the authors also examine different socioeconomic and demographic factors (other than COVID-19) that could potentially affect older American adults’ expected and actual retirement ages.

Retirement Expectations

According to the authors, both sets of results indicate that more than half of Americans retire earlier than they expected. The most significant factors that influence participants’ retirement decisions relative to expectations are health, wealth, age, change of marital status, mortality expectations, education levels, disability and major illness diagnoses. “Understanding and better capturing the influence of these factors can help the retirement benefits community explore strategies to mitigate the negative consequences of individuals’ inaccurate retirement expectations upon their retirement outcomes,” the authors argue. Based on the survey data from Prudential Financial, retirement age expectations are relatively sticky, especially among older households. As such, the fluctuations in expected retirement age during and shortly after the COVID-19 period were not significantly larger than those before the pandemic period. Meanwhile, although different ages responded differently, their responses within age groups did not differ meaningfully during the pandemic versus shortly before and after the COVID-19 emergency period, the authors explain. Ultimately, analyses from both data sets indicate that older Americans’ retirement expectations (including planned retirement age and Social Security benefit claiming age) remained uninterrupted despite enduring the impact of the COVID-19 pandemic on their work and financial situations in 2020 and beyond. With respect to the other factors, better health status is generally linked to Americans having later retirement expectations, while higher wealth has the opposite association. Other factors associated with higher retirement ages include a change of marital status, lower mortality expectations and higher education levels. Finally, the authors find, major illness diagnoses coincide with earlier retirement expectations.

Retirement Reality

As the authors note, more than 34% and 31% of older Americans plan to retire around age 62 (Social Security’s early retirement age) or 65 (the age of Medicare eligibility), respectively. “However, it is clear that actual retirement ages differ from expectations,” they explain. “[Our analysis] shows that not only do people actually retire well before Medicare eligibility age of 65 but also that the actual retirement age numbers are more spread out, with a peak at age 62 (15%). More than 44% of the respondents retire before age 62, which is concentrated on the left side of the peak.” In contrast, only 24% of participants expected to retire before age 62 while they were still in their 50s. “Using the actual retirement age minus the expected retirement age, the distribution of these differences also implies a higher likelihood of retiring before expectations,” the authors note. “Only one in six (16%) retired at the age they expected.” Including those that accurately forecast their own retirement age, 36% of the sample retired within one year of their expected first retirement age, while 49% retired within two years and 64% retired within three years of their expected first retirement age. Overall, just under 80% retired within five years of their expected retirement ages, and almost 5% retired more than 10 years away from the retirement age they had forecasted while they were in their 50s. “Last but not least, we want to know the magnitude of the likelihood for participants to retire earlier or later (timing flags) caused by each factor,” the authors explain. “The regression results imply that the positive improvements in participants’ self-reported health, self-perceived life expectancy, income level, and getting married will likely cause participants to retire later than expected.” Positive changes in participants’ wealth levels, financial planning horizon increases, major illness diagnoses, as well as widowhood are likely to cause participants to retire earlier than expected, keeping everything else equal.

Conclusion and Implications

According to the authors, understanding retirement age expectations compared to actual retirement ages can help policymakers, employers and financial services industry providers improve retirement benefit design across a range of structures, products and services. “Retirement age decisions not only affect the economic well-being of individuals and households in the U.S., but also impact the financial solvency of the Social Security system,” the authors note. “A growing body of research indicates that retirement age projections are inconsistent with decisions on actual retirement age, and incorporating retirement age uncertainty into a financial plan can significantly impact required retirement savings levels.”