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What is retirement? When does it start? And how has Covid-19 affected Americans’ retirement plans?
An ongoing survey of American retirees and near-retirees suggests that there is a wide range of opinions on these fundamental issues and a rapidly changing perspective on what retirement will look like in the future.
Last July, about a third of 11,000 older Americans surveyed by financial adviser Edward Jones and consultant Age Wave since 2019 said they expected to delay their retirement plans. But when asked earlier this year, that number had jumped to 59%, with respondents saying they expected to work one way or another in their prime, either on time full, part-time or cycling between work and leisure.
Respondents also disagreed on what retirement is. Some thought it started at a specific age; others, when they left their main job or started drawing their pension. Still others believed that the retirement milestone was when they achieved financial independence.
“Retirement is going through a time of transformation as people figure out where they want to be and how they want to live,” said Ken Dychtwald, founder of Age Wave. “Covid has disrupted many lives and many people have decided they are not ready for retirement.”
Initially, the coronavirus pandemic had an ambiguous impact on consumer confidence and sentiment. The recession produced by the first wave at the start of 2020 was very strong, but it was also very brief. Unlike the 2008 recession, the economy and the stock market recovered quickly, but with some hiccups.
Between federal stimulus payments, rising wages, increased savings and a booming stock market, more older Americans seemed motivated to join the Great Resignation and retire early.
“Most recessions are accompanied by a decline in personal wealth, but household balance sheets have actually improved since 2020,” said Richard Fry, senior fellow at the Pew Research Center. “Rising pensions may not be permanent, but the pandemic hasn’t led to a drop in overall wealth.”
The situation of many of these people has changed. With high inflation and a falling stock market, the level of anxiety among potential retirees is rising. Dychtwald said financial worries are the biggest reason older Americans are delaying retirement.
“People are terrified of running out of money in retirement, and this year has taken a lot of money from the nest egg,” he said. “The overwhelming majority of people don’t have enough resources to retire comfortably, so when they consider the cost of a long retirement, working longer seems like a good idea.”
Finances aren’t the only factor, however. Dychtwald said survey respondents highlighted the importance of work to their identity. Many also expressed a desire for social connectedness and a sense of being part of something. “We sometimes see work as a punishment or a burden on people, but very often it’s not,” he said. “People work for more than money.”
In many cases, the pandemic has given older Americans a taste of what retirement could be like, either because they lost their jobs, developed health issues, or were forced to work from home during the community closures.
Dychtwald believes that many have not enjoyed these months. “Covid has given a lot of people used to working with others the experience of isolation,” he said. “Many now say they want to stay in the game longer.”
Opportunities are certainly there for experienced workers. The final factor pushing many older Americans to delay retirement and continue working is the huge demand for their services. About 4 million baby boomers are now retiring every year – a major cause of the tightest labor market since the 1960s. Covid is not the only reason behind this, but it has been a significant contributing factor.
Even though labor force participation rates are now increasing for all age groups – including for Americans over 65 – the overall labor pool in the country will continue to shrink as baby boomers will age. Additionally, older Americans have talents and experience that are now in even greater demand, as many of their boom colleagues have left the workforce.
This presents opportunities for those who want to continue working full-time or part-time. “There’s a lot of demand for people who have 35 years of professional experience and knowledge,” Dychtwald said. “We not only have low unemployment, but we also have a talent shortage.”
There are both positive and negative reasons why people delay full retirement. As risks in the economy and financial markets increase, more older Americans may need to continue earning an income. However, many of these people choose to work or reinvent themselves simply because they want to.
“It used to be that retiring earlier was a hallmark of success, but various variables are converging to make people think twice about it,” Dychtwald said. “More people want to continue doing something meaningful in their lives and there are so many more choices available to them.
“I think that wide range of choice will continue.”