Retirement Transitions: Expectations Versus Reality

Today’s workers’ expectation of when and how they will retire is a radical departure from how retirees actually retired. 

That’s according to Transamerica Center for Retirement Studies’ (TCRS) survey report, Life in Retirement: Pre-Retiree Expectations and Retiree Realities. 

In comparing the retirement preparations and expectations of age 50+ workers with the experiences of retirees, the study found that more than 4 in 10 workers age 50 or older (44%) envision transitioning into retirement by reducing work hours with more leisure time to enjoy life (28%) or by working in a different capacity that is less demanding and/or brings greater personal satisfaction (16%). 

The reality, however, was that 41% of retirees stopped working immediately when they retired, 26% worked as long as possible until they could not work anymore, and only 13% transitioned into retirement by reducing hours or working in a different capacity.

Among retirees who retired sooner than planned, only 17% retired due to their financial ability to do so, 45% retired for health reasons, and 42% did so for employment reasons such as unhappiness, organizational changes, job loss, and/or a buyout. 

In contrast, among retirees who retired later than planned, 75% did so for financial reasons or the need for benefits, while 56% did so for healthy aging-related reasons such as enjoying their work, staying active, and keeping their brain alert (note that respondents were asked to select all that apply). Overall, 56% of respondents retired sooner than planned, while 37% retired when planned and 7% retired later than they had planned.

Meanwhile, fewer than one in four age 50+ workers and retirees are very confident they will be able to maintain a comfortable lifestyle throughout their retirement (17%, 23%, respectively), the study further reveals. 

“Our research finds that retirees are happy, purposeful, and have a positive view of aging. However, many are financially vulnerable and risk running out of savings. Their cautionary tale underscores the imperative for strengthening our retirement system,” said Catherine Collinson, CEO and president of Transamerica Institute and TCRS.  

Fears About Retirement 

Not surprisingly, the greatest retirement fear among age 50+ workers is outliving their savings and investments (45% age 50+ workers, 32% retirees), while the greatest fear among retirees is that Social Security will be reduced or cease to exist in the future (42% age 50+ workers, 39% retirees). 

In addition, many age 50+ workers and retirees fear declining health that requires long-term care (41%, 35%, respectively) and possible long-term care costs (35%, 28%).  
 
“Retirees and pre-retirees have limited financial means. Both cohorts are susceptible to the turbulent economy and inflation. A harsh reality is that many lack the resources to cover the cost of a major financial shock. If a market downturn, personal health emergency, or natural disaster strikes, many may find themselves in a dire situation,” said Collinson. 

According to TCRS, retirees have saved $73,000 in total household savings excluding home equity, while age 50+ workers have saved $133,000 in total household retirement accounts (estimated medians). Retirees have an annual household income (HHI) of $58,000, significantly less than age 50+ workers’ HHI of $87,000 (estimated medians). Regarding their expected primary source of income in retirement, retirees and age 50+ workers most often cite Social Security (54%, 36%, respectively). 

And as a sign of the evolving retirement landscape, almost one in five retirees (19%) expect to primarily rely on income from a company-funded pension plan, compared with just 10% of age 50+ workers. In contrast, 26% of age 50+ workers expect to rely on 401(k)s, 403(b)s, and IRAs, compared with 11% of retirees. A noteworthy 11% of age 50+ workers expect to rely on income from continued work. Just 1% of retirees and age 50+ workers expect to primarily rely on home equity or an inheritance.  
 
“Many pre-retirees and retirees are experiencing pitfalls that could be potentially mitigated through improved planning,” notes Collinson, who adds that fewer than one in four age 50+ workers and retirees have a financial strategy for retirement in the form of a written plan (23%, 19%, respectively).