You don't know when you'll retire. Here's how to plan for it anyway

Your retirement date might seem like something you can control, but you can’t always.

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Myles Ma, CPFCSenior ReporterMyles Ma, CPFC, is a senior reporter and certified personal finance counselor at Policygenius, where he covers insurance and personal finance. His expertise has been featured in The Washington Post, PBS, CNBC, CBS News, USA Today, HuffPost, Salon, Inc. Magazine, MarketWatch, and elsewhere.

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Most people, even people who love their jobs, are working toward the day when they can stop working. Saving for retirement is a pillar of any financial plan. But it can be tricky. While it’s possible to ballpark how much money you’ll need in a given year based on how much you spend now, it’s harder to predict how long you’ll be able to work. 

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Average retirement age in flux

An analysis from Alicia H. Munnell, director of the Center for Retirement Research at Boston College, shows that after a steady decline for most of the 20th century, the retirement age started climbing in the 1990s. She identifies various factors that contributed to the rise, including: an increase in the Social Security retirement age, the shift from defined-benefit plans like pensions to defined-contribution plans like 401(k)s, better education, an increase in healthy life expectancy, and declining access to health insurance for retirees.   

Many of these have changed in ways to incentivize people to retire later. For example, the age to receive full retirement benefits from Social Security has been increasing for years, until reaching 67 this year. People with 401(k) plans tend to retire later than people with pension plans because of the greater investment risk. Better educated and healthier people tend to work longer. As fewer companies offer health insurance to retired employees, more people work until they can claim Medicare benefits at 65. 

But many of these changes have run their course. There are no plans to keep increasing the Social Security retirement age. The transition from pensions to 401(k) plans is basically complete, as is the decline of company-provided health insurance for retirees. The percentage of men ages 50 to 54 with degrees hasn’t grown since 2000, and Munnell expects the growth in educational attainment among women to slow by 2030. Healthy life expectancy has also stalled in recent years. Because of all these factors, Munnell anticipates the average retirement age won’t get much higher.

“I don’t expect the average retirement age to ever be 70,” she says.

What this means for your retirement plans

While you receive full your Social Security benefit if you retire at age 67, you can receive 132% of your monthly benefit if you delay retirement until 70. So financially, it makes sense to work longer.

“People who have acceptable jobs and are healthy should really plan to work until they’re 70,” Munnell says. 

But not everyone can do that.

“Not everybody has an agreeable job,” Munnell says. “Not everybody has good health.” 

People with less education, who tend to have worse jobs, earn less money, and are more likely to have health problems, are more likely to encounter setbacks that will keep them from reaching their targeted retirement age, Munnell says. And as Munnell’s analysis lays out, there appears to be a ceiling on improving those odds.

So how do you plan for retirement when you’re not sure how long you’ll be able to work? You need to build enough buffer in your savings plan to account for the possibility of an unexpected early retirement, and you need to invest in insurance to cover the risk that you won’t be able to earn income.

The most basic place to start is with your workplace retirement plan, and making sure you’re saving enough to earn any matching contributions your company offers, Munnell says. The other place you can accumulate wealth is through your home.

When you’re uncertain about the length of your retirement, it helps to be certain about other aspects of your post-work life, says Sergio Garcia, certified financial planner and managing director of financial planning for BFS Advisory Group in Texas. Garcia asks his clients to visualize their retirement in as much detail as possible. Someone who wants to buy a beach house for their grandkids to visit may need a very different retirement plan from someone who wants to travel the world when their working days are done.

How to plan for early retirement 

The idea of early retirement may seem aspirational, but in reality it usually means that a disability has left you unable to work. One way to protect against a loss of income due to disability is disability insurance

“Disability insurance provides partial replacement of income in the event someone can no longer work due to a disability that prevents them from their regular duties,” Garcia says.

Many employers offer short-term disability insurance, but long-term disability insurance, which you purchase yourself, can cover you until you reach retirement age, ensuring that you keep earning income until then. You should also consider life insurance to protect your family from losing your income if you die before retiring. It’s a good idea to weigh these risks regularly with a financial professional, Garcia says.

“It’s just to see if there’s any difference in their profile or situation which would require us to make a change,” he says. 

Your retirement picture might seem murky, especially if you don’t expect to stop working for a while, but a good financial plan accounts for the unexpected.

“Contingency planning is the key,” Garcia says.

Image: Makiko Tanigawa / Getty