What is an Early Retirement?
There is no official measure of “early retirement.” Retirement is a word that has come to mean many different things to many different people.
However, when we talk about an “early retirement” we generally mean that you have stopped working before the age of 65 and the image of carefree 55 year olds on the golf course comes to mind.
By this measure, early retirement is becoming less popular. According to the Bureau of Labor Statistics:
- The work force participation rate for people in the 65-to-69 age range increased to 32.1% in 2015, from 18.4% in 1985.
- People still at work in the 55-64 year old range increased 7.3% from 56.8% in 1994 to 64.1% in 2014.
What is the Average Retirement Age?
Figuring out the average retirement age is tricky. Different experts use different data points to calculate the figure. You can:
- Look at when people start Social Security. Most people start at age 62, but nearly half of those people are also earning work income. Are they actually “retired?”
- Assess what people say about themselves. However, according to the Economic Policy Institute (EPI), “numerous surveys confirm that many self-described ‘retirees’ are still working for pay.”
- Examine labor force participation. Researchers at the Center for Retirement Research (CRR) at Boston College, for example, define the “average retirement age” as the age at which labor force participation drops below half. By this measure, CRR estimates that the average retirement age is around 64 for men and 62 for women. However, it does not exclude people who are not meant to be in the workforce like homemakers and the disabled — skewing the number younger.
- According to the EPI, perhaps the most accurate way to measure retirement is to “look at the age at which half of the nondisabled workforce has exited the labor force.”
By this measure, the average retirement age is 65.5.
Average Retirement Age in Your State
Smart Asset took U.S. Census Bureau data and figured out the average retirement age by state.
- The states where people retire the youngest include: West Virginia, Michigan, Arkansas, Kentucky, Missouri, Mississippi and South Carolina. Average retirement age in these states is 62.
- The states where people retire the oldest are: Utah, Wyoming, Nebraska, Kansas, New Jersey, Connecticut, Massachusetts, Vermont and New Hampshire. Average retirement age in these states is 65.
The availability of jobs, the health of the populations, the cost of living and other factors may contribute to the discrepancies between states.
Why Are Fewer People Retiring Early?
There are many reasons people are working longer:
- Social Security Cuts: According to the Center for Retirement Research, “the gradual phase-in of Social Security benefit cuts enacted in 1983, and other factors have reversed a post-World War II trend toward early retirement.”
- Longer Lives: We are living longer lives. Because we are living longer and can only afford so many years of retirement, our retirement date is getting postponed.
- Health: Americans today are healthier than ever before. This robust nature let’s us keep working longer than previous generations.
- Work Keeps Us Vital: Study after study shows that work can keep us young and vital. And, some research suggests that an early retirement signals an early death. The Journal of Epidemiology and Community Health reported that, “healthy retirees who worked a year longer (over the age of 65) had an 11% lower ‘all-cause mortality risk’. Even the unhealthy group reduced their likelihood of dying by 9% if they delayed retirement.”
- Shift to 401ks from Pensions: Pensions were once commonplace. They guaranteed income to retirees. However, over the past quarter century, we have shifted to 401(k)s as the de factor retirement plan. While not a total failure, many of us have failed to save enough into our 401k or other retirement savings, reducing our ability to fund our retirements.
- Worry: A Gallup poll found that only 38% of survey respondents believed that they would have enough money to live comfortably in retirement. This concern is compounded by uncertainty about government institutions and financial markets.
Some People Still Retire Early — Very Early in Fact
Believe it or not, one area where early retirement is thriving is among 20 and 30 year olds. A growing number of young people are devotees of a philosophy called FIRE — Financial Independence Retirement Early.
These people radically strip down what they need to spend money on and focus every aspect of their lives on achieving financial independence.
When Can You Retire?
There are a lot of different ways to answer this question. Do you have enough savings? How much do you need to spend? What sources of retirement income will you have? How will these factors change over time?
However, a really good retirement calculator can give you the nuanced inputs and analysis to get a great idea of when can you retire. The NewRetirement retirement calculator was named a best retirement calculator by the American Association of Individual Investor’s (AAII). This easy to use system puts you in the driver’s seat. You control the inputs and assumptions for personalized and clear input about when to retire.