Pre-Retiree Expectations Versus Retiree Realities
Al Waller: Often times in life, expectations and reality diverge. The weather forecast may call for rain but then it’s sunny all day. Or your map app says it will take 45 minutes to reach your destination, but an unexpected detour takes an hour and a half. Some things turn out better, others may turn out worse, and others may simply be totally different than expected.
While these disconnects happen in our daily experiences, they can also happen with major milestones in our lives, whether embarking on a career, getting married and starting a family, moving to a new location – and retiring.
Joining me today on ClearPath – Your Roadmap to Health & Wealth℠ is Catherine Collinson, founding CEO and president of nonprofit Transamerica Institute® and its Transamerica Center for Retirement Studies to share her team’s new survey report on Life in Retirement: Pre-Retiree Expectations and Retiree Realities. On this first part of a three-part series, we’ll be discussing similarities and disconnects between age 50+ workers (pre-retirees) and retirees.
Before we get started – a reminder that we would love to hear from you and learn what topics you would like us to cover or give us feedback on today’s show. Please drop me or Catherine a note at [email protected].
Catherine, I’m very intrigued by this new survey report. Where would you like to begin?
Catherine Collinson: Let’s start with some of my favorite similarities between age 50+ workers, whom we refer to as pre-retirees, and retirees, those living in retirement. The big similarities relate to their visions of aging and retirement. Both cohorts share an upbeat attitude.
Age 50+ workers and retirees are more than twice as likely to mention positive word associations with “retirement” than negative. Specifically, more than eight in 10 age 50+ workers (84%) and retirees (86%) cite one or more positive word associations with the three most often cited being freedom, enjoyment, and stress-free. Fewer than four in 10 (39% both cohorts) cite one or more negative word associations with the most common being financial insecurity and health decline.
Al Waller: After some stressful and challenging days at the office, I was in the majority of those viewing retirement in a very positive light. I also knew retirement needed to feature something more engaging than just rocking on the front porch or reducing my golf handicap. Over the years, I’d heard those cautionary tales of retirees without a departure game plan.
What are some of the other views that you and your team uncovered regarding retirement?
Catherine Collinson: In the many years that my team and I have been doing survey work, workers of all ages and retirees share retirement dreams that include travel, spending more time with family and friends, pursuing hobbies, and doing volunteer work.
A relatively recent phenomena is workers dreaming of doing some form of paid work in retirement. In fact, until a few years ago, it didn’t even occur to us to ask in the survey if people dreamed of working in retirement. Now that we do ask the question, we have seen an interesting difference. Twenty-four percent of age 50+ workers dream of doing paid work– whether starting a business, continuing to work in the same field, and/or pursuing an encore career. In contrast, only 9% of retirees say they dreamed of doing paid work.
Al Waller: Working in retirement – indeed that’s a sign of the times. I guess that I’m one of the few. When I retired as a human resources executive, I knew that I wanted to have an encore and give back – and that’s how I found this opportunity on ClearPath – Your Roadmap to Health & Wealth.
Since this idea of work in retirement shows up in your survey as a bit of a disconnect, what are some other disconnects that you’re seeing in the research?
Catherine Collinson: Before I answer that question, I have to give you a huge shout out and kudos for your encore career. You’re a trendsetter and role model for others. We are so thrilled and fortunate to have you on our podcast.
Al Waller: Many thanks for the kind accolades, Catherine! I’m sure some of my teachers would be surprised at hearing me referred to as a role model. But honestly, this has been such a fulfilling opportunity, and I clearly feel like I’m living the dream.
Catherine Collinson: I'm glad we're talking about this – the topic of work in retirement and encore careers is a common theme. This is why I think it's important that our listeners know the backstory of ClearPath – Your Roadmap to Health and Wealth. It’s important we share your story or people would not be aware.
Now, I’d like to sound the alarms on a major disconnect. Two-thirds of age 50+ workers (66%) expect to retire after age 65 or do not plan to retire. However, retirees retired at age 62 (median). Many retirees (58%) retired sooner than planned and, among them, they did so for health-related reasons or employment-related issues. Very few said they retired early due to financial ability (17%).
Al Waller: I’m sorry to hear this, but I’m not surprised. Many of my contemporaries found themselves retiring under similar circumstances. What can our listeners do to avoid finding themselves in this predicament?
Catherine Collinson: Focus on the basics. Clearly, the survey findings underscore the importance of safeguarding our health, keeping our job skills up-to-date, and helping ensure our employability by performing well at our current job and staying on top of the job market and employer’s needs. The survey findings also underscore the importance of having backup plans for life’s unforeseen circumstances.
Al Waller: Having an alternative or “fallback plan” is absolutely in your best interest. Catherine, you saw another disconnect in the survey findings that relates to how pre-retirees envision transitioning into retirement. Can you elaborate on that?
Catherine Collinson: Forty-four percent of age 50+ workers envision transitioning into retirement by reducing their work hours or working in a different capacity. However, only 13% of retirees experienced this type of transition.
I have a two-fold theory about this disconnect. First, on the positive side, it is a sign of changing times that workers expect to work into older age and that the notion of work and retirement are no longer mutually exclusive. Secondly, on a concerning note, retirees’ experience could be reflective of their retiring sooner than expected. A mysterious 21% of retirees said they were “not sure” how their transition to retirement took place.
Al Waller: Shifting gears, I’d like to ask about sources of retirement income. I understand your research found some interesting differences between pre-retiree’s expectations and retiree’s realities.
Catherine Collinson: Yes, we see some striking differences.
Two-thirds of age 50+ workers (66%) are expecting retirement income from 401(k) or similar plans or IRAs, compared with just (44%) of retirees.
In contrast, 39% of retirees have income from company-funded pensions, and only 26% of age 50+ workers are expecting it.
This is clear evidence of our evolving retirement landscape in which traditional pensions began disappearing amid the introduction and proliferation of employee-funded 401(k)s with employer contributions.
Another striking difference is more than one in three age 50+ workers (34%) expect retirement income from continued work, compared with just five percent of retirees.
Al Waller: Those are big differences indeed!! Continuing on this topic of money, how does the household income of pre-retirees and retirees compare?
Catherine Collinson: That's a great question because I think that's on a lot of people's minds. When we are working, we are bringing in a paycheck as a means for paying our bills. If we do a good job and circumstances are right, we may even receive an annual raise. Something we all should be concerned about is what our income will look like in retirement. When we're not bringing in that paycheck anymore – or maybe there's some part-time work – it's not the same as working full time. To help illustrate differences in retirement income, here are our findings.
Retirees report dramatically lower household income than age 50+ workers. Retirees’ household income is $58,000 compared with age 50+ workers which is $87,000 (medians). Many retirees are living on a fixed income, so they are particularly vulnerable to inflation because it erodes their spending power.
If age 50+ workers are successful in their endeavors to work into older age and gradually transition into retirement, they could help mitigate this risk in addition to bridging any savings gaps they might have.
Al Waller: We’ve covered some of the highs and lows of retirement – and how it can be a rewarding but difficult journey. What gives you hope and what can our listeners do to better their prospects?
Catherine Collinson: In our research, we see opportunities – or more specifically missed opportunities – that are within reach for most people. With regard to both pre-retirees and retirees, we find that many are not yet engaged in financial planning. Yes, it requires doing your homework, but creating a well-developed financial plan can help you identify your strengths, risks, options, and action steps for improving your situation. Fewer than one in four pre-retirees (23%) and retirees (19%) have a financial strategy for retirement in the form of a written plan.
Al Waller: As I have said many times, “What gets written tends to get to get done.” As well, to your point, it all boils down to doing your homework. Catherine, where can our listeners find your new survey report, Life in Retirement: Pre-Retiree Expectations and Retiree Realities?
Catherine Collinson: Please visit transamericainstitute.org.
Al Waller: Thanks, Catherine, to you and your team for your research and insights. Listeners, we hope you’ll join us for future episodes in this three-part series on pre-retiree expectations versus retiree realities. The second episode will be on the wisdom and experience of retirees, and the third and final episode will be on how to get ready to retire.
For our listeners, if you have ideas for future episodes, comments, or feedback, please email me or Catherine at [email protected]. Don’t forget to subscribe to our podcast so you don’t miss upcoming episodes.
Until the next time, I’m your host Al Waller. Stay safe, be well and thanks for listening.
ClearPath – Your Roadmap to Health & Wealth is brought to you by Transamerica Institute, a nonprofit private foundation dedicated to identifying, researching, and educating the public about retirement security and the intersections of health and financial well-being. You can find our weekly podcast on WYPR’s website and mobile app, wherever you get your podcasts, and at transamericainstitute.org/podcast.
ClearPath – Your Roadmap to Health & Wealth is produced by the Transamerica Institute with assistance from WYPR.
The information provided here is for educational purposes only and should not be construed as insurance, securities, ERISA, tax, investment, legal, medical, or financial advice or guidance.
