These Factors Drive Americans to Retire Earlier Than Expected

What You Need to Know

More than half of Americans retire earlier than expected, a new study finds.
While one in six Americans retired at the exact age they expected, just under 80% retired within five years of their expected retirement age.
Researchers say incorporating retirement age uncertainty into a financial plan can significantly affect required retirement savings levels.

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.