In today's episode, Bridget and John explore the surprising reality of retirement age. Despite common perceptions, most people retire earlier than they plan to. Join them as they delve into why this happens, the financial implications, and how to plan effectively for an unpredictable future. Bridget Sullivan Mermel from Chicago, Illinois, and John Scherer from Middleton, Wisconsin, share their insights and experiences from their financial planning practices. They discuss studies showing that while many plan to retire at 65 or older, the average actual retirement age is much younger.
Resources:
- Alliance of Comprehensive Planners: https://www.acplanners.org
- John's firm website: https://www.trinfin.com
- Retirement Survey: https://www.ebri.org/retirement/retirement-confidence-survey
- Age plan vs reality: https://www.ebri.org/docs/default-source/rcs/2024-rcs/rcs_24-fs-2.pdf?sfvrsn=2647072f_1
#RetirementPlanning #FinancialPlanning #EarlyRetirement #RetirementAge #PersonalFinance #FinancialFreedom #MoneyManagement #PlanForTheUnexpected #BePrepared
TRANSCRIPT:
Bridget: Hey, John, a new study shows that what we found to be true is true. People think they're going to retire when they're 65 or 67 or 70, but they actually retire a lot earlier than that. Hi, I'm Bridget Sullivan Mermel, and I've got a fee-only financial planning practice in Chicago, Illinois.
John: And I'm John Scherer. I've got a fee-only financial planning practice in Middleton, Wisconsin. And before we dig into why people actually retire earlier than they typically plan to, I want to remind everybody to hit that subscribe button. That helps other people find this information on YouTube. And with that, Bridget, I love your introduction. There're things that are perceptions, things that we read about online and things. And at least what I see with clients isn't always the same as what that perception is. And I know it's the same for you, too. So I'm interested in digging into this topic here today.
Bridget: Yeah. When you actually look at this research, this is what we find. And we've seen it in our continuing education classes, too. This isn't just one weird study that is showing information that no one else agrees with, and we'll link to it in our notes. But what they're basically saying is only 20% percent of the people retire after 66. And then 80% of the people retire earlier than that. And the average age for retirement, from the workers mouths, “This is when I actually retired,” is 62. The average age people expect to retire is 65. From our perspective, three years is a big gap when you're planning where the money is coming from.
John: Right. And it's interesting, I had been teaching a retirement class here at the local technical college, and we came across very similar information in one of the workbooks that we had. It was talking about how two thirds of the people planned to work beyond age 65 and even to age 70. And so, a third plan to retire earlier than that, but what happened in reality was exactly the reverse, so the same as this study is showing. Something like a third of people retire after age 65, and two thirds are retired by the time they get there.
So again, to your point, this is not a one-time deal. And it’s just really interesting for me how people think about retirement age and what we can do. And when I talk with folks, usually the conversations are more along the lines of people asking, “Can I retire at 62 or 60 or 57 or something. Can I retire early? Can I afford to?” And then the default, the alternative being, “Well, if I can't do that, then I'll just work until I'm 65 or 70 or whatever the math is on that.” So it's really interesting.
Bridget: Yeah. And with some clients I will say, “Let's have a stretch goal. How about 60?” They'll come in saying, “Oh, I want to retire at 65,” and then I'll say, “Let's have a stretch goal. What if you could retire at 60 or 62? What would that be like?” And I know people currently who are asking, “Why does this happen? Why is there this gap?” Because even people that are 55 really think this too. And so why is there perception gap?” And it seems there's a few things. First, the people I see who actually do work when they're older, like after age 67, it's not about physical ability, because I think most people who are 67 certainly have the physical ability to work. That's not the limiting factor.
It's the people who do work generally have their own businesses. And I don't have stats on this. This is just coming from my experience. They have their own businesses, so they have total autonomy, or maybe they have a pension and they really do determine their age. Now, that's not 100%. I know one person who is in a pension system, but their position got eliminated. That's a different situation. A person who thinks he has total autonomy then doesn't, so I think the question is what about these other forces? Is your company going to stay in business? How do you fit on the big chart in the sky? Those are questions I think that people are not necessarily thinking about when they're thinking about the retirement age.
John: Yeah. One thing that’s interesting to me as I think about this is to look at where the unemployment rate has been recently. There’s a big demand for workers, or at least it seems like that from all the things I see and read. And there’s a curious dichotomy of people with jobs eliminated. Different things happen, so they can’t do the things that they were doing, but they still don't work. Is it because they cannot find a job when all these companies are hiring? Or is it that the jobs that are available aren't the right fit for them? And I don't know the answer. I'm just curious as to what your opinion is on that.
Bridget: Well, and it's also how hard am I going to look for a job.
John: Right.
Bridget: For example, how much internal motivation do I have now to put myself out there like that and go get a job? And then ageism is real. And there's ageism like people think, “Oh, you're old, you can't work a computer.” But then there's also other types of ageism. And I don't know if this is exactly ageism, but a lot of times when you hire people, you have this fantasy that you can be working with them for 15 or 20 years. And if somebody's older, you don't generally entertain that same kind of fantasy.
John: Right.
Bridget: Again, there's a big gap in what actually happens and what people want to happen, but I think there're forces working against people when they're 60.
John: Yeah. And it seems to me that there's something different about saying, “I’m choosing to leave my full-time job, because I know this thing that I'm going to as a secondary job.” A client recently retired, and he's going to go to the golf course and cut grass in the morning and get free golf at the golf course. And that's part of the plan as opposed to the other side where suddenly your job is eliminated or whatever happens, now you're sort of thrust into this position as opposed to your plan that you had being something different when you have that change of plans.
As I said, can I retire earlier? is sort of the question. Let's say we're forced into retirement early for whatever reason, or we choose to job downsize, and I just don't want to go through what it takes to go and work for half the wages I was working for before. What's the reality of that? What does that look like? How do you have those conversations with clients who are planning to work until 65 or 67 or 70? My reaction is, hey, that's great, but let's talk about what happens if you can't. For some reason, I assume that you do something similar.
Bridget: Absolutely. And this is just kind of plan a. You have your optimal plan, but then you have plan . And so, it's thinking about what you want your life to be like. I think that's first. And then thinking about, okay, how is this going to impact my spending? But interestingly, the same survey said that people are happy when they're retired. Some people are stressed out about money, but it seems to be 25% of the people. So other people figure it out. Just like we talk about with young people, they figure it out, thinking, “How am I going to work this?
And one factor that comes up when we're doing these is, well, if you want cash flow, what about Social Security? You can take that at 62 if you're not working. We're not going to get into the details of taking Social Security at 62 in this episode, so there's more to say about that, but that's a possibility. Maybe you wait until you're 65 or 67 or 70. But again, that's one of the things in play.
John: Yeah, I think that's exactly right. And I have similar conversations with folks. And I think you mentioned it with your stretch goal idea. Okay, here's the plan, but if you are at 62 and, and now suddenly you find yourself out of work for various reasons—health reasons, other reasons—what does that look like? And what's the Cadillac retirement and then what's the Chevy Chevette retirement plan, just the basic getting around sort of thing.
And so that you have this idea that we don't necessarily need to do all the things that we want to do, and for every individual, it can be different. You might go, “Yep, I'm going to do this, and if things change, great. I'm not going to do those things, but I'm also not going to go out and kill myself trying to find a new job.” And it's just a choice. And knowing what the choices are and having the facts, I think, is super important.
Bridget: The same survey looks at how many people actually work in retirement. And again, people think they're going to work in retirement more than actually work in retirement. And both survey results—working until you're 70ish and working in retirement—I’m all for. From a happiness standpoint, I think it makes sense to work longer and work maybe not quite so hard. This is true both from a happiness and a social engagement standpoint. But you got to look at reality, too. Things happen again.
Another factor that comes into play with people is having a health emergency, or their spouse has a health emergency. Or I have a lot of clients who are retired, and their parents are still alive. So the parents have a health emergency. There's a whole bunch of different factors that can come into play and so that can motivate retirement for people who are totally able bodied. And it's not that they're not capable. It's just these other things happen.
John: I love that description of those different things that come. There are things that we don't know, and it comes down to me to be basic financial planning. Here's the plan. But the reality is what we plan is probably not going to work out that way for reasons we don't have any idea what they are. I was thinking, hey, if I have a health problem, or I have a stroke that throws a monkey wrench in my plans, what if my parents, what if my kid, what if my grandkids?
I mean, we know people that are raising grandkids in their sixties and seventies. Life happens and taking a look at those options and being prepared for the different contingencies is really important. It's just financial planning when it all comes down to it. But not getting locked into one plan. Don’t have “I'm going to work till I'm 65 or 70” be the only plan. Plan a, yes, but the only plan, no. You have to be aware of the options.
Bridget: Absolutely. So I think that's a great place to wrap it up. I'm Bridget Sullivan Mermel. I've got a fee-only financial planning practice in Chicago, Illinois.
John: And I'm John Scherer. I've got a fee-only financial planning practice in Middleton, Wisconsin. Both Bridget and I are taking on new clients. We'd love to hear from you, but we're also both members of the Alliance of Comprehensive Planners, which is a nationwide group of fee-only planners that are tax-focused and think like Bridget and me. So if you like what you hear on our show and you want to find somebody in your local area, you can check out acplanners.org.
Bridget: And please subscribe.
At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.