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November 10, 2023 at 12:30 PM
For the purposes of many research projects that examine the retirement readiness of the U.S. workforce, households over the full Social Security claiming age are commonly assumed to be living fully “in retirement.”
That is, households older than 65 or 67 are commonly assumed to not be earning money to complement their income from sources such as Social Security, private savings and employer-provided pensions.
However, as explored in a new report published by the Center for Retirement Research at Boston College, the veracity of this assumption can increasingly be called into question.
According to the CRR report, households older than 65 have substantial and growing earnings, but as the analysis freely admits, even the CRR’s own National Retirement Risk Index does not count earnings after 65 in its assessment of the workforce’s retirement readiness.
The broader focus of the analysis is whether estimates of retirement readiness that fail to properly account for the actual Social Security claiming behaviors and earnings patterns of older Americans lead to an overly pessimistic assessment of the nation’s retirement readiness. For what it’s worth, the answer to that inquiry seems to be a partial but qualified yes.
According to the report, regardless of how one collects and slices the data, roughly 50% of working U.S. households are at real risk of running short of needed funds in retirement.
As significant as that finding may be, some of the more granular results from the analysis are likely of more direct import for the day-to-day work of financial planning professionals with older clients.
For example, the CRR analysis provides an in-depth look at the actual earning patterns of adults older than 65, finding such earnings represent an “amazingly high share” of total income for these older households.
Moreover, a comparison with 1995 data reveals that earnings have been a significant component of the income of older households for some time — and they have become more important recently.
This fact, according to the CRR researchers, has important implications when it comes to making retirement income projections and assessing the prudence of a given individual’s financial plan.
See the accompanying slideshow for a list of seven surprising facts about the work earnings of Americans older than 65. Taken together, they help to illuminate the benefits and potential pitfalls of planning to work beyond the “traditional” retirement age.
(Credit: Adobe Stock)
Slideshow
