Clients Make Assumptions About Retirement. They’re Often  Wrong 

Mark Twain may have been right when he quipped that all a person needs in life is ignorance and confidence. But when it comes to successfully navigating retirement, that’s playing a dangerous game. 

Many Americans make a lot of assumptions about retirement, from when they’ll finally leave the job to when they’ll claim Social Security, according to new research from J.P. Morgan Asset Management. That’s mostly a good thing, because planning for retirement requires a lot of forethought and careful financial and behavioral preparation. The problem is that many people seem to be working from faulty premises, starting with the belief that retirement is a one-time event that can be carefully orchestrated according to one’s personal wishes. In reality, retirement is more of a journey than a one-time event, with timing that can vary widely due to factors not entirely (or even partly) within the individual’s control. That’s why the research compares the experiences of current retirees with the expectations of savers, while highlighting the important role that financial advisors can play in helping their clients cut through the noise. 

“Retirees can offer a valuable reference point for [those people] still saving,” said Michael Conrath, chief retirement strategist for J.P. Morgan Asset Management. “This year’s survey highlights several disconnects between what people expect and what retirees actually experience.”

Perception vs. Reality 

Perhaps the biggest faulty assumption baked into many savers’ expectations about retirement pertains to timing:  

• Just 28% of workers polled expect to retire before age 65, while 33% expect to work until they are 66 or older. 
• But 68% of current retirees left the workforce before age 65, with half retiring sooner than planned due to health issues, job loss or other factors.

These gaps suggest that many people are overestimating how long they might actually remain in the workforce, which can in turn cause a false sense of security about one’s true retirement readiness. Even simple math shows retiring at 62 versus 65 requires a significantly larger nest egg, all else being equal. 

What drove people from the workforce? Nearly 3 in 10 stopped working for health reasons, but financial readiness also played a role, with 25% saying they were able to afford retiring sooner. However, many point to job-related factors, including workplace dissatisfaction (24%), job loss or layoff (21%), stress or burnout (20%) or an early retirement offer (14%).

Social Security Uncertainty. Working baby boomers’ expectations about Social Security claiming are likewise divorced from their retired counterparts’ reality. While nearly two-thirds of retirees started claiming Social Security at age 65 or earlier (including nearly 1 in 3 who began drawing benefits at age 62), nearly two-thirds of younger working boomers (65%) expect to wait until 66 or beyond.