The Declining Retirement Age is Dead

Over the last 100 years in the United States, the average retirement age has declined dramatically from 76 in 1900 to 64 in 2010.

The same is true globally, according to a recent BofA Merrill Lynch Global Research report. The average retirement age in developed countries had declined from 68 years in 1970 to a low of 63 by 2004.

But that trend may not last for long.

According to the report, 18 of the 34 Organization for Economic Cooperation and Development (OECD) countries are currently phasing in a higher retirement age.

By 2054, 15 OECD nations will have retirement ages above 65 versus only eight today, the report states.

From 2010 to 2014, the average retirement age in the U.S. had already risen a year — from age 63 to 64, according to UN data.

The benefit to delaying retirement is a significant increase in retirement savings.

“By putting off retirement by up to five years, individuals can expect to boost their total retirement income by up to a quarter,” the report states. “On average, people set themselves a target of replacing 70 percent of their pre-retirement income once they retire. Putting off retirement by around five years will help people achieve this goal and close the retirement gap.”

According to the report, this is “especially positive” because data shows that older workers (age 51-60) tend to maintain their earnings levels more so than during their prime working years (age 41-50).

“In developed countries, an increasing number of pre-retirees and retirees are continuing to work into older age because they are not financially prepared for retirement and others because they want to do so,” the report states.

While the average retirement age has declined over the last 50-100 years, the report looks at data that shows people are also living much longer, which means more time spent in retirement and a higher probability they’ll outlive their assets.

In the U.S. alone, the report points to data that the life expectancy at birth increased more than 30 years since 1900 and eight years since 1970.

In the United States, women are expected to spend nearly 21 years in retirement and men nearly 17 years, according to OECD data from 2014. According to BofA’s research, data from the European Commission shows that by 2060 people in the European Union will on average spend nearly four years longer in retirement than in 2014. By then, men are estimated to spend 31.5 percent of their life in retirement and women 35.4 percent.

In countries like Japan and South Korea, people are likely to live for another 30 years after they reach age 65, according to OECD data.

The report delves into the costs of living longer and financial consequences of “longevity risk.” The Merrill research team defines longevity risk as the “risk that, on average, people live longer than expected, or ‘too long.’”

For the providers of pensions and annuities, the risk is that the payments are made for longer than anticipated.

“Longevity risk develops and reveals itself slowly; if left unaddressed, it can affect financial stability by building up significant vulnerabilities in public and private balance sheets,” the report states.

The financial implications of longevity risk are substantial, according to the report.

“If an individual lives three years longer than expected by 2050 (the average underestimation of longevity in the past), then the already colossal costs of aging increase by a further 50 percent,” the report states.

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1 Ben S. Bernanke. Brookings Institution. April 11, 2016. "What tools does the Fed have left? Part 3: Helicopter money" Accessed July 6, 2016.

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