Workers Plan to “Downshift″ Into Retirement

Retirement for many Americans these days is not a matter of suddenly exchanging employment for a quiet life of leisure; instead, a majority of Americans age 40-69 expect employment will be a big part of their early retirement years, and that could lead to a change in approach for financial advisers offering retirement planning services.

That was the conclusion of new research and a survey conducted by Vanguard’s Center for Retirement Research that said many Americans have or plan to “downshift” where they move from a traditional full-time position to less-stressful or part-time employment. Nearly two in three respondents age 55-69 have downshifted already or plan to do so in the future, according to the research.

This new model means a change for financial advisers helping workers and retirees with their retirement planning and decision-making. Advisers will need to tailor their advice to these different groups of individuals, Vanguard researchers wrote. For example, those who retire in their 50s will need to finance many more years of retirement than traditionally expected and those continuing to work during their traditional retirement years will be able to add to their savings with benefits programs income from work. According to the announcement, Americans choices about work in their later years are driven largely by financial resources, including assets in employer plans and personal savings, but also by issues such as health and personal preferences.

“For baby boomers short on retirement savings but still in reasonably good health, work earnings can help narrow any financial deficit. Indeed, as noted by our findings on those who retired and then returned to work, one of the important risks facing older Americans is the risk of retiring too early—a risk that can have both financial and psychological consequences,’ the report says.

Based on the work histories of older Americans, Vanguard found that six distinct paths emerged as individuals transitioned from work to retirement and depending on the path being followed, retirement for a given individual can include full-time or part-time work, self-employment, or a return to work, as well as no work at all. However, of the six paths researchers noticed, three-quarters of older Americans follow one of the three paths

  • The largest group of respondents (35%) left full-time work in their 60s, yet continued with some type of self-employment or part-time job thereafter. Financial necessity was cited as an important reason for continuing to work.
  • Nearly 30% of the survey respondents left the full-time workforce in their 50s and did not work again. This group fit the conventional view of retirement, but retired much earlier than is typical. Adequate financial resources, in pensions, 401(k)s, and personal savings accounts, were key in making this transition.
    Some 12% of respondents retired from full-time work in their 50s, but quickly took on high levels of part-time work or self-employment. Generally, this group of semi-retirees resumed working to enjoy themselves, to stay active, or to earn discretionary income. The ability to retire in their 50s was also made possible by more generous financial resources.
  • The remaining Americans follow three other paths, Vanguard reported. The Never Retire path (10% of respondents) includes those individuals who say they never plan to stop working; the Returnees path (5% of respondents) are those who retired early but then returned to work for financial and psychological reasons; and the Spouse’s Retirement path (9% of respondents) represent individuals who had lower participation in full-time work in their 40s and 50s and pegged their retirement to that of their spouses.

The Vanguard study had two components: a qualitative portion consisting of interviews with 38 men and women, age 40-75, and a quantitative component containing a survey of nearly 2,500.

A copy of the study is here.