Ready to retire? Maybe not just yet

If you have socked away money in a 401(k) and your 60th birthday is behind you, chances are you are thinking about when to retire.

Chances are, too, that you are planning to retire sooner rather than later. The average retirement age seems to have stabilized at 62 for women and 64 for men, according to new research from Boston College's Center for Retirement Research. But retiring too young can be very harmful to your financial health, the study found, and older workers would do well to hang in a bit longer.

Continuing to work reduces the amount of time when people need to live on their savings. It can also lead to more guaranteed retirement income. "An individual who delays claiming Social Security from age 62 to age 70 receives a monthly benefit that is 76 percent higher," said Alicia Munnell, director of the center.

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Shrinking pension benefits

Senior man in meeting
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The retirement age is stabilizing largely because the forces pushing it higher have been played out. Consider the shift in retirement plans, for example. In 1979, 74 percent of workers participating in retirement plans had a defined benefit pension that would provide a fixed income stream, according to Labor Department data.

As more workers became responsible for generating their own retirement income through 401(k) accounts and the like, older workers started putting off retirement. The center found that workforce participation rates for men and women age 55 to 64 started gradually increasing in the mid–1980s.

"Studies show that workers covered by 401(k) plans retire a year or two later on average than similarly situated workers covered by a defined benefit plan," the study found.

As of 2013, though, 93 percent of workers in retirement plans already had defined contribution plans, so there are fewer workers left who might adjust their retirement timing because of a change in their retirement savings plan.

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The decline of retiree health benefits has also been a factor. Thirty or 40 years ago, large companies, at least, regularly provided health coverage for their retirees, but no more. The share of companies with 200 or more workers offering retiree health benefits to active workers declined from 66 percent in 1988 to 28 percent in 2013, according to the Henry J. Kaiser Family Foundation. So, fewer people have opted to stay on the job to maintain health coverage because retiree health benefits are less available.

Changes in the nature of work also contributed to a rise in older worker participation. As the manufacturing sector has contracted, many jobs have become less physically demanding, enabling older workers to stay on the job longer. But that trend has also fizzled out, the report found.

Retirement savings gap

A stabilizing retirement age is a problem because workers today have, on average, saved far too little to insure a comfortable retirement. Average 401(k) balances at Fidelity were $91,300 in 2014, but the firm also estimated that a 65-year-old couple retiring that year would spend an average of $220,000 during retirement on out-of-pocket health care costs alone.

Women are continuing to remain in the workforce longer, Munnell said, and their average retirement age may soon catch up to men. But women also tend to have lower average retirement savings and longer life expectancy, so they have higher retirement savings hurdles to clear.

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Munnell believes that today's workers need to be encouraged to continue working. "Given that the earlier factors contributing to later retirement appear to have run their course, the most potent lever at this point may be educating workers about the enormous payoff to working longer and delaying claiming" retirement benefits, she said.