Retirement: Expectations versus Reality (9:51)
Most retirees tend to retire earlier than planned, and many do not work for pay after retiring
Broadcast Retirement Network’s Jeffrey Snyder discusses recent research that outlines individual’s retirement expectations versus the reality with MissionSquare Research Institute’s Zhikun Liu PhD, CFP and PGIM’s David Blanchett, CFA, CFP, PGIM.
Jeffrey H. Snyder, Broadcast Retirement Network
This morning on BRN, retirement expectations versus reality. Joining me now to discuss this, we’re going to welcome back to the program Dr. Zhikun Liu of Mission Square Research Institute and David Blanchett of PGEM. Dr. Liu, Dr. Blanchett, great to see you both again. Thanks for joining us in the program this morning.
Zhikun Liu, PhD, CFP, MissionSquare Research Institute
Great to see you, Jeff. Good to see you.
Jeffrey H. Snyder, Broadcast Retirement Network
Yeah, and we’re going to be talking this morning about retirement expectations versus reality. And Dr. Liu, I want to start with you and ask a basic question. What are Americans retirement expectations?
Zhikun Liu, PhD, CFP, MissionSquare Research Institute
That’s actually a very good question, Jeff. Retirement expectations can be defined in different ways. I think the most common way is at what age people think they’re going to retire.
Some other ways involve, some people may say, I want to retire by year 2030 or 2050. That’s a year. And some people may think I will retire when I have a million dollars saved.
So that’s an asset target. But in this research, we’re focused on the retirement age as the retirement timing decision.
Jeffrey H. Snyder, Broadcast Retirement Network
And do our expectations change over time? I mean, I was at one time a young man and I thought about things differently. I know it’s hard to believe for the audience, but I thought about things perhaps a little bit differently.
Do our expectations change as we age over time?
Zhikun Liu, PhD, CFP, MissionSquare Research Institute
Yes, retirement expectations do change. In fact, we track people, some of them are in their fifties in 1992, and we track them all the way to 2020. And we find that as they age, their retirement expectations are getting later and later, which means some people may think they’re going to retire at age 50 in 1992.
But by the year 2000, they may think they have to postpone it to age 65 or 70. So we see a natural upward trend for people to postpone their retirement age.
Jeffrey H. Snyder, Broadcast Retirement Network
Yeah, it sounds like reality may kick in. And we’re going to talk about that a little bit later. And then lastly, Dr. Liu, let’s talk about the COVID pandemic and did that change or have an impact on older Americans retirement expectations?
Because that changed a lot of things for a lot of Yes, yes.
Zhikun Liu, PhD, CFP, MissionSquare Research Institute
And we hear a lot of headlines too. We hear there is a great recession, changes to great reshuffling, and then there’s a great layoff. So people start looking for a job again and go back from retirement.
So our study, we used different econometrics testing, and we find that interestingly, the net effect of COVID-19 pandemic to people’s retirement expectations are insignificant. Meaning, statistically speaking, the COVID-19 didn’t change much about people’s retirement expectations, which we can dig deeper why this is later. But this is what we find in the research.
Jeffrey H. Snyder, Broadcast Retirement Network
Yeah, absolutely fascinating. David, excuse me, Dr. Blanchett, always great to see you. I want to bring you into the conversation because I want to ask you another basic question.
I start off with the basic questions and we get harder as we go on. How do you define actual retirement in this study?
David Blanchett, CFA, CFP, PGIM
That’s a fun question. When we started looking at this analysis, we realized there’s lots of different ways you can define it in the data. You could do it, the first age that someone reported the most common or the mode, the last age.
And so we focused on the mode, but I think that to me, what’s really interesting here is just that retirement has lots of different definitions. People can retire and unretire. So there isn’t a cut and dry definition of when someone actually retires if you look at data historically.
Jeffrey H. Snyder, Broadcast Retirement Network
And are there gaps between expectation and reality based on the study?
David Blanchett, CFA, CFP, PGIM
I think that’s the most important trend that’s existed for decades, which is that while we do see expectations changing over time, a lot of younger people have wishful thinking about when they’re going to retire. There’s a pretty persistent gap in terms of when people actually retire and when they expect to retire. People tend to retire about two or three years earlier than expected.
So the age of retirement is rising, but it isn’t consistent on average with expectations around retirement.
Jeffrey H. Snyder, Broadcast Retirement Network
And Dr. Liu, I want to come back to you and ask, and we’ll kind of go back and forth in this section, but what factors influence older Americans’ retirement expectations and reality?
Zhikun Liu, PhD, CFP, MissionSquare Research Institute
Yes. To echo on David’s finding, we find that people’s actual retirement is different from their expectations. So we want to dig deeper and see what factors, if not COVID, then what are the significant factors, both economically and statistically?
So we find factors such as health, wealth, age, change of marital status, morality expectations, education levels, disability, and major illness diagnoses are the main factors changing people’s retirement, both expectations and their actual retirement age.
Jeffrey H. Snyder, Broadcast Retirement Network
And Dr. Blanchett, are these factors also impacting the gaps between actual and expected retirement ages?
David Blanchett, CFA, CFP, PGIM
They do. And I think to me, at a high level, because there’s lots of drivers in terms of what happens here, is the biggest gaps that I have seen is by age, where people who plan to retire at a younger age aren’t incredibly inaccurate. It’s those that start pushing retirement out to age 65 or 70, where there’s this massive difference in terms of actual and expected retirement.
So what concerns me the most, people would say that, I haven’t been saving enough, I want to retire at 65, I’m going to push it till 70. Most of the folks that say that are not going to make it to 70.
Jeffrey H. Snyder, Broadcast Retirement Network
Yeah, yeah. It’s certainly, it’s like a dispersion of, if you will, between reality and expectation. Dr. Liu, so what does this all mean for participants, or as we call them in the retirement industry, or employees and their employers?
Zhikun Liu, PhD, CFP, MissionSquare Research Institute
I think this has significant meanings for both employees and employers. Let’s look at employee first. When they first join the workforce, they’re usually asked, when do you think you’re going to retire?
That’s one of their input for designing their retirement withdrawal glide path, their saving accumulation strategies, as well as choosing targeted funds. We know that a lot of retirees are defaulting to targeted funds, and if their target is off by more than three years, then that’s significantly changing their retirement future. So that’s important for retirees, for employers too.
Employers design all kinds of devices to help retirees, or employees, to secure a better retirement future. However, they need good input, and if they know the input for younger workers are not in par with the reality, they need to design some device to adjust the changes, and that will help tremendously for the employers to design retirement benefits, a targeted fund, as well as design a glide path withdrawal strategy. So yes, for both employees and employers, these are important.
Jeffrey H. Snyder, Broadcast Retirement Network
Yeah, and Dr. Blanchett, I want to end this part of our discussion with some lessons or some takeaways for the retirement industry, of which we’re all a part of. So it could be product manufacturers, record keepers, people that are so embedded. Are there key takeaways from this research, Dr. Blanchett, for those constituencies?
David Blanchett, CFA, CFP, PGIM
Well, I mean, you know, I’ve always kind of said delayed retirement is like the silver bullet when it comes to improving retirement outcomes. You get another year to save, another year for your portfolio to grow, one less year of income to fund, and a higher social security benefit. I think that what this research really demonstrates is that that’s not going to be a reality for many Americans.
And so I think that, you know, for those that are approaching retirement who are in their 50s, and they kind of wake up and say, wow, I’m far behind, it’s easier to say, hey, I’m just going to work a few more years and save a little bit less, but that’s just not reality. And I think that, you know, advisors, everyone that’s doing these financial plans needs to make people aware that, hey, there’s a very real chance that you’re going to retire before you expect to do so, and prepare for that possibility. Because if you don’t, you’re going to wake up at 62, 63, 64, and all of a sudden retire early, and it’ll have a radically negative effect on your retirement.
Jeffrey H. Snyder, Broadcast Retirement Network
Yeah, really, really important to kind of work that out in advance. Gentlemen, we’re going to have to leave it there. Tomorrow, we’re going to pick up the conversation with Dr. Liu and Naomi Fink. So we’ll see you all tomorrow. Thanks so much for joining us. And we look forward to having you both back on the program again very soon.
Zhikun Liu, PhD, CFP, MissionSquare Research Institute
Thank you very much, Jeff.
Jeffrey H. Snyder, Broadcast Retirement Network
And don’t forget to subscribe to our daily newsletter, The Morning Pulse for all the news in one place. Details, of course, are at our website. And we’re back again tomorrow for part two of our conversation with Dr. Liu. I have another very special guest. Until then, I’m Jeff Snyder. Stay safe, keep on saving, and don’t forget, roll with the changes.