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Advisor Insights

When Retirement Expectations Meet Reality

Advisors should assume clients will retire earlier than they expect.

The age at which an investor plans to retire is an important assumption in any financial plan. While the retirement age is typically provided by the client and treated as certain, a significant amount of uncertainty surrounds the actual date of retirement. For example, a growing body of research says that people tend to retire earlier than they expect. Retiring earlier than expected can be significantly detrimental to an investor’s likelihood of meeting his or her retirement income goal. It reduces the time for saving and investing, lowers the Social Security benefit, and potentially adds years to the retirement period, requiring more funding.

In this article, we explore the relation between investors’ expected retirement age and the actual age they retire at. We find that while the expected age of retirement is strongly related to when the person actually retires, there are notable differences between the expected retirement ages. For example, individuals who say they will retire before age 61 tend to retire later than they expected. Those who target a retirement age of 61 tend to retire when expected. And finally, investors who want to retire after age 61 generally retire a half-year early for each additional year of work they plan past age 61. In other words, expect an individual targeting to retire at age 69 to actually retire around age 65.