In the past few years, the retirement age has been increasing. Almost two decades ago, 10 percent of 55-year-olds were retired; now it’s only 5 percent.
Usually, people try to retire at the earliest opportunity given. Junior Aayush Deshpande outlined his optimal retirement plan. “I want to retire as early as possible,” expressed Deshpande. “I want to finish my career early, so I can relax and enjoy the rest of my life.”
Retiring allows individuals to live with freedom because they have no pressure from work. Their kids are usually in college and they finally have the chance to do whatever they want: traveling, starting a new project, or exploring new passions.
The faster retirement is achieved, the quicker a person will be granted these benefits.
With this being said, it would make more sense for the retirement age to decrease, as people would strive to reach these benefits faster, but clearly this is not happening.
Government teacher Joe Youngbauer described that retirement isn’t as simple as it sounds. “There are many different factors at play: how much a person makes, when they start, where they are located and who they work for,” Youngbauer stated.
Youngbauer described that his role as a public school teacher receives a pension and some other benefits from the government after he finishes his teaching career, because he is a government employee.
Contrasting this, Rusty VanWetzinga, a social studies teacher, explained that his neighbor, who has a corporate job, has a different retirement system in place. For instance, rather than having a pension, at the end of their corporate career, the company has an initial public offering (IPO) system in place, which is where the retirement plan is associated with the company offering some equity through stocks to their employees.
Many corporate careers use a 401k retirement plan for their employees, and this includes an IPO.
A huge problem with IPO plans is that it places a longevity risk on the employee, since the employee doesn’t know where the company is going to end up when they retire. Essentially, IPOs are more of an investment, so there isn’t a guaranteed minimum or maximum benefit.
Pension plans, however, place no risk on longevity because individuals are guaranteed their monthly pension, no matter what.
In the last year, the professional and business services industry created over 1.1 million new jobs. These industries include leisure and hospitality, health care, professional, scientific, and technical services. Overall, more jobs are being created in the corporate world.
Since corporate jobs are always on the rise, and they prefer 401k over pension plans, the risk of longevity involved with IPO in the 401k might explain the increase in retirement age.
Many corporate companies that use the IPO, and give equity to their employees, might not be doing so well, disrupting an individual’s retirement funds. This could be a potential reason as to why retirement age is increasing, as people need to work longer to make up for the loss in funds they originally had with the investments from their IPO.
Additionally, Youngbauer described the impact of education on retirement planning. “Growing up, my parents instilled the idea of retirement and planning in me, and that is how I learned a lot about retirement.” Youngbauer expressed.
Youngbauer started teaching when he was a young 22-years-old. Due to an early start to his career, putting away a small portion of what he makes into a retirement account, compounding over a longer period of time, gives him a better possibility to retire at a younger age.
A quarter of americans began saving in their 30s, 15% in their 40s and 6% in their 50s. Due to people starting retirement planning at an older age, people might have to work for a longer time.
Familiarity with retirement at an earlier age can lead to people retiring younger as more people will start retirement planning sooner.
Ultimately, there are many different factors at play for each individual: salaries, localities, start time for retirement funds, education on retirement and employer. All these factors explains the increase of retirement age.
