Has post-pandemic financial stress turned the Great Resignation into the Great Return? Franklin Templeton’s 2023 Voice of the American Worker survey found that the giddy sense of labor liberation from 2021 has dissipated. Today, financial anxiety is keeping people at the jobs they have and, in many cases, returning to the ones they left.
Even more striking is that nearly three out of four people (73%) are feeling the pressure to change what they originally planned for retirement as the current climate has pushed the planned retirement age back by three years from 62 to 65.
The source of the strain is no secret. Everything costs more than it should, credit and loans are too expensive, stocks spent a year in the red and recession warning signs are flashing. But there’s also evidence that the economy was so strong for so long that many people were lulled into a false sense of their own ability to pull off early retirement.
Not surprisingly, the study cited soaring living costs as the main culprit behind the three-year upward revision.
“Inflation, which is being seen in the daily costs of groceries, household items and other staples, has scared folks into delaying retirement plans,” said Lauren Locker, CFP, a fee-only, fully fiduciary NAPFA-registered financial advisor and founder of Locker Financial Services.
Just when prices started rising, people watched their 401(k) plans shrink in the face of a bear stock market. The result was that people realized they would need more money than they had planned for but had less of it saved than they thought.
That’s a recipe for disappointment — but if their plans were based on best-case scenarios, were they ever truly prepared for the heavy lift of early retirement?
There’s no denying that the last year or so has been a rough road, but even during the best of times, retiring at 62 is probably more of a dream than a reality-based plan for the average American worker.
“Inflation, rising interest rates, and the stock market downturn have all played a role in pushing back the average retirement age to 65,” said Professor Michael Collins, CFA of Endicott College in Beverly, Massachusetts, and founder and CEO of WinCap Financial. “However, economic experts suggest that 62 was an unrealistic retirement goal for many people — even before the pandemic.”
You’re not even eligible for reduced Social Security benefits until 62 — and even 65 is two years shy of full retirement age. But the historic run of stock market gains, stable inflation and low interest rates that preceded the pandemic might have fostered an unreasonable sense of confidence in the plausibility of retiring five years early.
“Sixty-two was an optimistic goal that was not attainable for many Americans due to their financial limitations,” Collins said. “The prolonged period of low borrowing rates and a decade-long bull market — which many people had come to expect — ended in 2020, causing many to adjust their retirement goals.”
The previously stated goal of retiring at 62 leaves three long years between the last day of your employer’s healthcare coverage and the first day of Medicare eligibility. It’s likely that a million or so deaths made that gap feel much wider to many who had nursed the dream of early retirement.
“When you factor in the high cost of health insurance, which is so necessary in these uncertain times, retiring before 65 seems to be an unreachable goal,” Locker said. “Waiting until 65, with eligibility for Medicare, is a better alternative than 62 for many, both psychologically and financially.”
The combination of high inflation, rising interest rates, recession anxiety and a down market undoubtedly foiled some people who might have been on track to retire five years early. But viable retirement plans account for the inevitable rough patches, and it’s more likely that post-pandemic realities revealed vulnerabilities that stayed hidden when the good times were rolling.
“One of the main reasons for the shift is a change in mindset,” said Raymond Quisumbing, a registered financial planner with Bizreport.com who specializes in retirement planning. “During the onset of the pandemic, many people lost what they perceived to be a stable job, a stable business, and a foolproof retirement plan. When people lost their main source of income during the pandemic, it put a strain on their retirement savings. When the pandemic threat went down, inflation became the next factor. With rising inflation rates, people felt that their money had lost purchasing power quickly. This perception then enhanced the mindset that it is much safer to retire by age 65.”
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