Kevin E. Cahill, PhD & Gene J. Kovacs, PhD

Kevin E. Cahill, PhD & Gene J. Kovacs, PhD

Today we hear lots of reports about how Americans are failing at retirement planning: 401(k) plans are insufficient; the Social Security trust fund is depleted; private savings are nonexistent. What are we saying these three pillars of retirement income are failing to provide, though: 20-plus years of full-time leisure? That goal might have made sense in a booming post-World War II America, when we generated an enormous amount of wealth and spent a sizable fraction of it on leisure, including long retirements.

Those days are gone.

Today, most Americans—young and old—can’t expect 20 years of leisure in retirement without a reduction in their standards of living. Our society—government, employers, and individuals—simply can’t afford that.

Here are the facts. The latest Social Security Board of Trustees report shows that Social Security will be able to pay promised benefits until 2033, after which some form of benefit cut or tax increase will be required to keep the program solvent. Sounds fine, but unfortunately the 2033 number requires lots of additional government borrowing as the Social Security Administration cashes in the IOUs it’s received from the Treasury. So while 2033 may be a relevant number from the Social Security Administration’s perspective, the government needs to borrow money now to finance our full promised Social Security benefits going forward. Further, even with the borrowed funds and even if the long-term gap in funding can be resolved, the typical older American can expect only about $1,200 per month in Social Security benefits—hardly enough to sustain a person in retirement.

Private pensions and savings are faring no better. Gone are the days of private-sector traditional defined-benefit pension plans, and there’s no sign that these plans are coming back. In their place are 401(k)s, and the typical older American household has accumulated less than $50,000 in these accounts. As for private savings, the typical worker has less than $25,000, excluding home equity and the value of defined-benefit pensions.

The not-so-awful truth
So, yes, the typical older American is unprepared for traditional retirement. Now, we can pretend that this isn’t the case, and advocate ever-larger publicly funded retirement benefits that the country can’t afford. Or we can face reality and do something about it.

Back in 2004, the Congressional Budget Office (CBO) conducted an analysis that examined how much in savings would be required to maintain living standards later in life based on the timing of retirement. According to the CBO, if a worker stays on the job just four more years—from age 62 to 66—the amount of money needed for retirement will fall by more than half. Delaying retirement for eight years—from age 62 to 70—reduces the amount needed for retirement by 90 percent!

The reason for this extreme impact isn’t rocket science. Each additional year of work:

  1. replaces a year in which assets are drawn down with a year in which assets accumulate, earning interest, and
  2. reduces the number of years of leisure that need to be financed.

With such huge benefits, working at least until the age of 66 seems to be a slam dunk for most Americans. Further, because an additional hour of work necessarily means one less hour of leisure, to recognize the need for continued work is also to acknowledge that traditional retirement is a thing of the past.

The Expanding Golden Years
Note: Average retirement age is defined as the youngest age at which half of individuals are out of the labor force.
Sources: Arias E. United States life tables, 2008. National vital statistics reports; vol 61 no 3. Hyattasville, MD: National Center for Health Statistics. 2012 (available at:; Quinn, J.F., Cahill K.E, &Giandrea, M.D. 2011. “Early Retirement: The Dawn of a New Era?” TIAA-CREF Institute Policy Brief (July) (available at:

Those who might think that extending their time in the workforce is a new hardship should think again. What’s truly new in American society, as the illustration above shows, is the idea that 20 years of leisure is the normal way to retire. Today, the average retirement age of men is about 65—higher than it’s been in about 30 years, so as a country we’ve already started moving in the right direction. In 1950, however, the average retirement age of men was 70 and in 1910—more than a hundred years ago—it was 73. The difference between retirement today and in the past is even more pronounced when one takes into account increases in life expectancy. With amazing improvements in health and longevity and with jobs being less physically demanding than in the past, common sense says that the vast majority of us can work later in life.

Herbert Stein, the late economist, once said, “If something cannot go on forever, it will stop.” For most Americans, traditional retirement is one of those things. It’s pointless, and even counterproductive, to say that we’re falling short of some fanciful retirement expectation. We aren’t falling short of anything. We’re simply returning to a more realistic world of work later in life.


The views expressed in this article are those of the authors and do not necessarily reflect the views of Analysis Group or ECONorthwest.


Kevin E. Cahill, PhD
Research Economist
Sloan Center on Aging & Work and ECONorthwest
Phone: 617.552.9195

Gene J. Kovacs, PhD
Vice President
Analysis Group, Inc.
Phone: 617-425-8118