Background
Americans are living longer. Given this, how long is retirement for the average American? How will this affect their need for retirement savings?
Findings
- Americans are living longer: CDC data shows that from 1970 to 2017, the average life expectancy at birth has risen 9 years for men (to age 76) and 6 years for women (to age 81).
- If you make it to 65, you’ll probably make it well into your 80’s: The same data shows that if people who reach age 65 will live about 20 years after that (see chart). Men on average live to 83, and women to 86.
- The average retirement age is about the same today as in 1970. For men this is 65 years old. The data for women shows a rising retirement age, but this data is tricky because so many more women are working, it’s hard to compare to historical data. I used Alicia Munnell’s analysis to obtain this data.
- The average retirement is about 21 years, 6 years longer than in 1970. This is calculated by comparing retirement age to life expectancy, and is a bit tricky – see the “small print” section for details.
Implications
Ouch! This is a key piece of the puzzle around American’s savings challenge. We know from other posts that we are not saving as much as we used to. At the same time, we need to fund a longer retirement. This is a toxic brew – less savings for a longer retirement.
It is critical to American’s comfortable retirement that we identify ways to help them save more. The next post will look holistically at the combination of demographic changes that are challenging our financial success. Following that, the key will be identifying ways to help Americans save more.
The small print
There are a couple of simplifications I’ve made in order to calculate length of retirement. Men and women have different retirement age averages. However, for women, this is particularly challenging as in 1970 a smaller percent of women worked, by the traditional census definition, and that reduced women’s retirement age average.
We know from the previous post on marriage that women are about 2 years younger than their husbands on average. I use this statistic for heterosexual marriages to apply to retirement as well. If husbands are age 65 at retirement, then their wives are probably 63 years old at that time.
Retirement is a tricky definition. Here, Munnell’s data calculates the age at which fewer than half of men or women are participating in the labor force based on the Current Population Survey. Some other studies look at the age at which people start taking Social Security payments.
The final piece of the calculation is the average retirement length. For men, I use the average retirement age and the average life expectancy at age 65 to calculate this. Life expectancy of 83 years minus retirement age of 65 = 18 years.
For women, I assume they retire the same time as their husband (simplifying assumption). That means they retire at age 63 because they are two years younger than their husband. Then I compare age 63 with the average life expectancy of a woman at age 65 to calculate years in retirement. Life expectancy of 86 years minus retirement age of 63 = 23 years.
Finally, I average the two retirement durations, men and women. Women will live in retirement longer than this number, men will live a shorter time.