American workers choosing an early retirement is a growing trend and concern. Until recently, many Americans planned to work well into their 60s and 70s. Now, it seems that sentiment has changed. A new study from the New York Federal Reserve cited in BenefitsPro found that Americans now say it’s increasingly unlikely they’ll work deep into their 60s.
In fact, the number of survey respondents expecting to work past age 62 fell to 50.1% in the New York Fed’s July 2021 study. That’s down from 51.9% in 2020, and the lowest on record since the study began in 2014. Those reporting they planned to be employed after age 67 also fell to 32.4% from 34.1%.
The Covid-19 pandemic is a key driver of the shift of American workers choosing an early retirement. In fact, it has created a wave of early retirements, with more than 1 million older workers leaving the labor market since the pandemic hit the U.S. in March 2020. Many have reconsidered their priorities and have been able to retire early as a result of strong financial market performance. However, that isn’t the case for everyone. Some have retreated from the workforce involuntarily. This is due to a lack of employment prospects. Regardless of the reason for leaving, the exodus of older workers is causing a dramatic shift in the American workforce because they have dominated the workforce over the past two decades.
Some Americans are clinging tightly to their jobs, even as a younger generation of co-workers lead the Great Resignation. Now, mostly Millennials and Gen Z’ers are switching jobs since the pandemic began. That may be in part because of the “reservation wage”, the lowest salary that Fed survey respondents said they’d be willing to accept. A switch to a new job, has risen more significantly for workers age 45 and over. It increased by 11% in the year through July, roughly double the rate of inflation.
The mass departure of American workers choosing to switch jobs sooner is something plan sponsors and retirement plan committees should pay attention to. Especially when it comes to making sure the aging workforce has adequate savings and benefits for retirement. It may be time for plan sponsors and committees to consider in-plan solutions. This can be in the form of lifetime income products. Such products can help make the transition easier. They also ensure older workers are able to draw down their savings at a pace that makes sense for their lifestyle. This is certainly true for Americans choosing to retire early. That means their savings need to last longer. Plan sponsors and retirement plan committees can help improve retirement outcomes, and not just for older workers, but for their entire employee population. It may be time to begin reviewing plan design features and ensuring they are delivering the benefits needed for success.