Why It's Risky to Plan to Work in Retirement
Planning to work longer to bolster your retirement finances?
It can make a big difference, but it is tough to pull off. Half of all retirees leave the workforce earlier than planned due to a health problem or job loss.
Blue collar workers with physically demanding jobs are most susceptible to early retirement, according to conventional wisdom. New research confirms that, but it also shows at least one type of early-retirement risk is spread much more widely across job types than previously thought.
These findings serve as a reminder that while working longer is a worthy aspiration, it is not a reliable financial plan. They also underscore a fallacy in the policy debate about raising eligibility ages for Social Security and Medicare.
Researchers at the Center for Retirement Research (CRR) developed a "susceptibility index" for early retirement that ranks 400 occupations on a 1-100 scale (100 is highest risk). They did it by cross-analyzing the federal Occupational Information Network database and the Health and Retirement Study, a long-running University of Michigan research project on Americans over age 50. The susceptibility index looks at the abilities required to do a job and measures the likelihood that those skills will decline with age.
The index does not measure the risk of early retirement due to job loss or other factors, such as the need to care for a family member. Instead, it looks at cognitive, psychomotor, physical and sensory abilities required to do various jobs. The key finding: highly educated professionals can be as susceptible to early retirement risk as a steelworker or truck driver.
"Almost every occupation has one ability that would be expected to decline with age," says Anek Belbase, research project manager at CRR and a co-author of the report.
The occupations least at risk are those where verbal skills are key. "These also are jobs where people rely on social skills, which tend to be constant or improve with age," Belbase says. The group includes sales representatives (index ranking: 4), judges and magistrates (5) receptionists (6) and bookkeepers (10).
If your job requires a high level of cognitive skill, you might be at greater risk, depending on the type of cognitive skill needed. "Crystallized" cognitive ability, or knowledge, tends to accumulate with age and boosts your odds of functioning well at older ages. But "fluid" cognitive ability, which includes things like episodic memory and reaction time to new information, tends to decline with age.
"A CEO mostly makes decisions using crystallized knowledge, but fluid intelligence does decline with age, and that is very important for some types of decision making," Belbase says. Still, CEOs scored just 21 on the index, far lower than designers (63), dentists (67) and photographers (71).
On the high end of the susceptibility scale are automotive service technicians and mechanics (100), electricians (96), detectives (83) and iron and steelworkers (98).
CRR's findings underscore the substantial risks to a financial plan of relying on extra years of work.
An unplanned early retirement requires stretching savings over more years, with fewer years of saving at high income levels just before retirement. Early retirement also can mean early filing for Social Security benefits, which reduces annual income substantially for the rest of a retiree's lifetime. And if early retirement comes before you qualify for Medicare (at age 65), the cost of health insurance can rise substantially.
The scattering of risk across occupations also has important public policy implications. Proponents of boosting eligibility ages for Social Security and Medicare argue that we can all delay claiming these benefits because we are all working longer these days. But it would create unnecessary, unpredictable retirement outcomes for millions of Americans.
How to know your own susceptibility number? Belbase's index has not been published in its final form, and there is no online tool yet that can show an occupation's susceptibility. Belbase's research will be published sometime in the next 12 months, along with downloadable charts of the index rankings.
"If you want to assess your chances of being able to work as long as you want, simply talk to older workers in your field," he suggests. "If you can't find any, that means you should probably have a back-up plan."
By the way, reporters and news analysts, I am pleased to say, scored a 37, so count on me to stick around here for a while.