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How Retiring at 62 Could Impact the Economy

October 06, 2021

Today, more Americans are choosing to retire early than ever before.

In July, the Federal Reserve Bank of New York conducted a survey of about 1,300 heads-of-household in the United States. In that survey, just 50.1% of adults believe they will work after age 62. That percentage - the lowest since the survey’s inception in 2014, is down 1.3% from just four months earlier.

The percentage of American workers who plan to stop working by age 67 also dropped 0.5% to a historical low of 32.4%.

While early retirement may be an attractive plan, it can also pose challenges for a healthy economy.

Why are more Americans retiring early?

The Bureau of Labor Statistics states that more than one million late-career workers have left the workforce since the COVID-19 pandemic swelled in February 2020. This river of exiting workers - that psychologist Anthony Klotz calls :The Great Resignation” - exists for a few important reasons.

First, many workers felt that the risk of exposure to the COVID-19 virus outweighed their desire to continue working. In August, 1.5 million people left their jobs because of COVID-19 fears - a repeat of July’s numbers.

Second, many who were forced from their jobs because of the pandemic have been unable to secure attractive employment. This has been most pronounced in service industries that were overwhelmingly affected at the pandemic’s onset. Julia Pollak, a labor economist for ZipRecruiter, believes that late-career workers simply decided to retire instead of taking sub-par work.

Third, rapid stock value increases gave more people the leverage to retire early. Fidelity’s August report showed a 75% one-year increase in the number of 401(k) and IRA accounts with at least $1 million in value - 754,000 in total.

On average, 401(k) account balances increased 24% from the previous year to $129,300. IRAs performed almost as well, with an average 21% increase and a $134,900 account balance.

For these reasons and many others supported by the most recent Fed data, early retirement is here to stay - experts do not believe that this trend will reverse in the post-pandemic world.

The “golden decade” becomes a reality for more Americans.

The flood of retirements sparked by the COVID-19 pandemic could be a catalyst that overhauls the entire U.S. economy.

Baby Boomers - all of whom are 75 or younger = have taken this opportunity to enjoy their 60s instead of working through them. People most commonly retire in their 60s now, but that phase of their lives is also the “golden decade” for tax planning. Experts at Aspire Planning Associates say this is because workers are eligible for retirement but young enough to take advantage of tax-reducing strategies.

Employers have relied on late-career workers for more than 20 years; however, the early retirement trend is forcing employers to refocus on early-career workers instead. According to the Bureau of Labor Statistics, the population of workers over 55 has grown by 20 million since 2000, while the population of under-55 workers has remained consistent. This means that the US economy had become heavily reliant on professionals who would reach the average retirement age in about ten years.

Also, 2020 Census data shows that Americans have fewer children, which means fewer workers to support the future U.S. economy. Coupled with the exit of older workforce members, this information points to an absence of available workers - employers will need to turn to other resources to find talent.

This shift has already prompted a massive increase in job openings in many industries - 10.9 million new jobs opened in July. This figure represents the fifth consecutive record increase. Even as the U.S. added 1.1 million payrolls, this data surfaced, indicating that challenges still keep companies struggling to attract workers. Many employers will have to rely on younger workers to do the jobs of retiring workers or use automated technology (such as robots) to bridge the gaps.

At IM Wealth Partners, we have an experienced team who can help you navigate your financial planning needs. We're here to help. Contact us today.