Americans Choosing Risky Times to Retire

A recent University of Missouri study, sponsored by Prudential Financial, finds that Americans are more likely to retire after periods that may seem beneficial at first, but are not well thought-out.

Some of these periods include strong equity market performance, the retirement of a spouse, or if they participated in a defined benefit (DB) pension plan. “A 10% increase in the S&P 500 index results in a 25% increase in the likelihood that individuals will retire, compared to a year in which the S&P 500 index performance was flat–all other factors being equal” said Professor Rui Yao of the University of Missouri, who conducted the study for Prudential Financial.

However, an analysis of the historical returns of the S&P 500 index from 1926 to 2010 shows that the stronger equity markets perform over a prior three-year period, the more likely it is that they will fall in the subsequent year. As a result, Americans are more likely to choose to retire at a time when there is more risk that their retirement assets will decline in value just after retiring.   

The study also found that pre-retirees with only defined benefit plans are almost twice as likely to retire in any given year versus those covered only by a defined contribution plan. Furthermore, pre-retirees with a retired spouse are almost two and a half times as likely to retire in any given year as their counterparts with a working spouse.  

“The study’s findings highlight the risk individuals take if they retire and haven’t protected their assets or converted retirement savings into guaranteed income during retirement,” said Stephen Pelletier, president of Prudential Annuities. “Americans need to think beyond reaching a retirement savings objective by understanding the risks associated with the timing of their retirement decisions and evaluating ways to secure their savings before they retire.”   

A Prudential white paper on the findings of the study and its implications for individuals and financial advisers, “Why Do Individuals Retire When They Do and What Does it Mean for Their Retirement Security?” is available on The University of Missouri’s academic paper on the research is expected to be published in the coming months.