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Will Working in Retirement Be the New Norm?

While few current retirees take a job in their “golden years,” a new study suggests that large percentages of future retirees expect to continue working during retirement, driven by uncertainty about Social Security and their own financial preparedness.

PGIM Investments’ “2018 Retirement Preparedness Study: A Generational Challenge” finds that only 6% of today’s retirees work, but 52% of pre-retiree Baby Boomers, 58% of pre-retiree Gen Xers and 43% of pre-retiree Millennials expect to take on a full- or part-time job during retirement. Perhaps not surprisingly, the study observes that these expectations may be linked to a decreased reliance on Social Security among these pre-retirees.

The study explores how the generational differences in approaches to retirement planning reflect each generation’s perspectives, experiences and length of time to retirement, and whether their current actions are aligned with their goals and expectations.

“While changes in retirement expectations are often driven by pure economics, these study results also suggest a mind shift in how people are thinking about retirement. However, pre-retirees’ actions don’t always back up their goals,” explains Stuart Parker, president and CEO of PGIM Investments. “To help them bridge this gap, the asset management industry will need to rethink the way that it does business and bring products and services in line with changing customer needs.”

As part of this shift, the study notes that pre-retirees are more likely to base their decision about when to retire on their wealth rather than their age with half of Gen Xers and 62% of Millennials saying they will retire when they have saved enough money. Conversely, current retirees decided when to retire largely based on their age and eligibility for Social Security and pensions.

Expect the Unexpected

Meanwhile, pre-retirees apparently need to evolve their saving habits. The study points to the recent Social Security trustees report showing that the program is operating at a deficit and will need to tap money from its reserves for the first time since 1982. But pre-retirees may not be prepared to fill the gap, the study notes.

In addition, while Social Security benefits are the most critical source of income for 61% of retirees, only 70% of Gen Xers and 51% of Millennials expect these benefits when they retire. And because they expect to rely less on Social Security and pensions, pre-retirees are planning to have more sources of income in retirement than current retirees. According to the findings, pre-retirees anticipate having — on average — 3.3 sources of income, compared with 2.6 for current retirees, with anticipated income sources including Social Security, savings, pensions and employment.

At the same time, the study found that more than half (53%) of pre-retirees are unsure how much they need for retirement. Gen Xers have the highest estimates of the savings they need at $2.5 million, but almost 1 in 5 are not saving for retirement at all. And while Millennials were found to be the least likely to rely on Social Security for retirement income, their actions appear to fall short of what is needed to fund a secure retirement. The study found that they are more heavily invested in cash and less invested in equities, and nearly 1 in 3 aren’t saving for retirement at all.

In addition, 79% of pre-retiree respondents agreed they should be doing more to prepare for retirement, but only 48% say they have a strong retirement plan in place and 63% do not use a financial advisor.

Pre-retirees also need to be prepared for the unexpected. The study notes that 51% of retirees say they retired earlier than expected, and, of that group, half say they retired more than five years earlier than planned. In many cases, the reasons for the earlier-than-planned retirement were involuntary, including for health problems (29%), layoffs or restructurings (14%), the need to care for a loved one (13%) and the inability to find a new job (10%).

Despite some of the study’s more negative findings in terms of expectations versus actions, the authors observe that, “It is encouraging, however, that a majority of pre-retirees seem to recognize how the retirement landscape has changed and have adjusted some of their expectations for it. With additional education, advice, and planning, they have an opportunity to improve their retirement outlook.”

The online study included a total of 1,514 interviews conducted by the Harris Poll from Jan. 18 through Feb. 1, 2018, among U.S. residents age 21 and over who are employed full-time or part-time, are self-employed, a stay-at-home spouse or retired, and are a primary or shared financial decisionmaker for their household.