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Half of Retirees Retired Earlier Than Planned, But Not Necessarily by Choice

More than half of retirees retired earlier than planned, but the vast majority did so in response to factors that were partially or fully out of their control, new research finds.

Prudential’s “Planning Your Retirement? Expect the Unexpected” study finds that 51% of retirees retired earlier than planned. While that may seem like welcome news, only 23% did so because they had enough money to retire, wanted to retire or were tired of working.

The study shows that 46% of those who retired earlier than expected did so because of health problems; 30% were laid off or offered an early retirement incentive package; and 11% quit to take care of a family member.

Pre-retirees seem well aware of these risk factors, according to the report, as their responses to concerns that may affect their retirement closely mirrored the actual reasons that retirees cited that caused them to retire earlier than planned. When asked about their greatest concerns that could negatively affect retirement savings, three of the factors cited by pre-retirees could force an early retirement: illness or disability (43%), losing a job (35%), and taking care of a loved one (12%).

Meanwhile, the research further shows that the gap between average actual and expected retirement ages was extensive. Pre-retiree respondents have a target retirement age of 65, but the mean actual retirement age for the retirees was 59. Most significantly, half of those who retired earlier than planned did so five or more years early.

The authors emphasize that this is especially important because the last several years of a career are generally considered to be top earning years and help boost the formulas that may drive retirement income, such as Social Security and DB pension income levels. In addition, unplanned early retirement can also accelerate the strain on financial resources because of the additional years in which retirement income is needed. And of course, some early retirees may not yet be eligible for Social Security or Medicare.

To quantify the effect of unplanned early retirement, the report cites a 2006 analysis by the Urban Institute showing that working an additional five years would result in a 56% increase in retirement income based on the incremental net wealth accumulated. This translates into a 36% reduction in total retirement income for individuals retiring five years early, the authors note.

The research further suggest that pre-retirees could benefit from a financial plan. Nearly three-quarters of pre-retiree respondents (74%) agree they should be doing more to prepare for retirement, but 40% say they “simply don’t know what to do.” In addition, more than half (54%) of pre-retirees have less than $150,000 saved in their employer-sponsored plans.

The Retirement Preparedness Study was conducted by Harris Poll on behalf of Prudential between July 20 and Aug. 9, 2016, using an online survey among 1,568 adults (including 438 retirees).