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Retirement Expectations Versus Retirement Realities. There's a large and troubling gap between the two

There exists a large and troubling gap between retirement expectations and retirement realities, according to the results of a recent online survey conducted by the Harris Poll on behalf of Prudential Insurance. [See "Planning Your Retirement? Expect the Unexpected" by Salene Hitchcock-Gear, Pres. Prudential Advisors]

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For starters, the average anticipated retirement age of pre-retirees was 65, while the actual retirement age of retirees was age 59--a six-year gap which is expected to widen into the future. Moreover, approximately half (51%) of retirees stopped working earlier than they had planned, and their reasons for doing so were often based on situations beyond their control, such as health problems (46%), job loss (18%), or the need to take care of a loved one (11%). Interestingly, preretirees were well aware of these risk factors, but they also worried that changes to the Social Security Program (39%) and market factors, such as inflation (27%), a market crash (24%), and market volatility (14%), might negatively impact their retirement.

The gap between workers' expected retirement age and actual retirement age has ominous implications. If workers retire earlier than expected, they will have less in savings to cover expenses during their retirement years. They may also be forced to start taking their Social Security benefits sooner rather than later when the benefits would be larger. In addition, because Social Security bases benefits on the average of a worker's top 35 years of earnings, workers who retire with less than 35 years of earnings will necessarily receive smaller Social Security benefits than if they met the 35-year earnings threshold. Workers who retire earlier than anticipated may also lose employer-provided health insurance, thereby increasing their out-of-pocket expenses.

An analysis by the Urban Institute estimates that if workers worked just five years longer, they could, on average, increase their retirement wealth by 56%! [See "Working for a Good Retirement" by Babara A. Butrica, Karen E. Smith, and C. Eugen Steuerle]. But, for workers in the bottom fifth of earnings, this percentage increases to 98% with just five more years of earnings. While not everyone will be able to work longer due to poor health, job loss, or otherwise, the studies confirm that working longer is one of the best strategies for ensuring a financially comfortable retirement.

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