Yakobchuk | Source | Getty Images
What is retirement? When does it start? And how has Covid-19 affected Americans’ retirement plans?
A current survey of American retirees and retirees shows that there is a wide range of opinions on these fundamental questions and a rapidly changing view of what retirement will look like in the future.
Last July, about one-third of 11,000 older Americans surveyed by financial advisor Edward Jones and Age Wave Consultants since 2019 said they expect to delay their retirement plans. But when asked earlier this year, that number rose to 59%, with respondents saying they expected to work in some way during their golden years: full-time, part-time or alternating between work and leisure.
The respondents also did not agree on what a pension is. Some thought it started at a certain age; others when they left their main job or started receiving a pension. Still others believed that achieving financial independence was an important retirement milestone.
“Retirement is a period of transformation as people determine where they want to be and how they want to live,” said Ken Dichtwald, 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 a mixed effect on consumer confidence and sentiment. The recession caused by the first wave in early 2020 was very sharp, but also very short. Unlike the 2008 recession, both the economy and the stock market recovered quickly, albeit with some disruptions.
Between federal stimulus payments, rising wages, increased savings and a hot stock market, more and more older Americans seemed motivated to join the Great Retirement and retire early.
“Most recessions are accompanied by declines in personal wealth, but household balance sheets have actually improved since 2020,” said Richard Fry, a senior fellow at the Pew Research Center. “The increase in retirement may not be permanent, but the pandemic has not led to a decline in overall welfare.”
The situation has changed for many of these people. With high inflation and a falling stock market, anxiety levels among potential retirees are rising. Dichtwald said financial worries are the number one reason older Americans are delaying retirement.
“People are afraid of running out of money when they retire, and this year has brought in a lot of money,” he said. “The vast 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.”
However, finances are not the only factor. Dichtwald said survey respondents emphasized the importance of work to their identity. Many also expressed a desire for social connection and feeling part of something. “We sometimes think of work as a punishment or a burden on people, but very often it’s not,” he said. “People don’t just work for money.”
In many cases, the pandemic has given older Americans a taste of what retirement might be like, either because they lost their jobs, suffered health problems or were forced to work from home during public lockdowns.
Dichtwald believes that many did not like these months. “Covid has given many people who are used to working with others an experience of isolation,” he said. “Many now say they want to stay in the game longer.”
There are certainly opportunities for workers with experience. A final factor driving many older Americans to delay retirement and continue working is the overwhelming demand for their services. About 4 million baby boomers are now retiring each year, a major cause of the tightest labor market since the 1960s. Covid is not the only reason for this, but it has been a significant contributing factor.
Although the labor force participation rate is currently rising for all age groups — including Americans over age 65 — the nation’s total labor force will continue to shrink as the boomers age. Moreover, older Americans possess talents and experience that are in even greater demand now that so many of their fellow boomers have left the workforce.
This opens up 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 experience and know-how,” Dichtwald said. “Not only do we have low unemployment, but we also have a talent shortage.”
There are both positive and negative reasons why people delay full retirement. As risks rise in the economy and financial markets, older Americans may need to continue earning income. However, many of these people choose to work or expose themselves simply because they want to.
“Retiring earlier used to be a sign of success, but a lot of variables are converging to make people think about it,” Dichtwald said. “More and more people want to continue to do something purposeful with their lives, and they have a lot more choices.
“I think the wide variety will continue.”