March 6, 2014
Delay Retiring: A ‘Smart’ Decision
If postponing retirement can improve one’s financial security in old age, why do so many people rush to retire when they reach age 62?
Much research has explored the financial and health reasons that explain why so few people choose to retire later. Taking a different tack, a new study found that individuals with higher cognition foresee a higher probability of working longer.
There were two steps to this research.
First, participants in an Internet survey were asked if they planned to continue working full-time after age 62 and, separately, if they expected to work past 65. Participants were between the ages of 45 and 61.
Next, the researchers measured each survey participant’s “crystallized intelligence,” which is the wisdom acquired with age. This type of intelligence helps to compensate for declining “fluid intelligence” – the ability to think quickly – which peaks in young adulthood. To measure their crystallized intelligence, participants took a standard psychology test in which they are shown pictures – perhaps a goat, maracas, a sextant (an astronomical instrument) – and asked to name them.
It’s an “adaptive” test that is able to measure the gamut of cognitive abilities. If an individual labels the first set of pictures accurately, then the second set of pictures he is given is more difficult to identify.
Those who scored higher on this test were more likely to plan to work past 62 and past 65, according to the study, which was supported by the Retirement Research Consortium. The researchers controlled for other factors identified in the literature as affecting the likelihood of working after those ages, such as education, sex, health, and non-housing wealth.
Individuals scoring in the middle – at the 50th percentile – on the vocabulary test had a 70 percent likelihood they planned to be working full-time after age 62 and a 40 percent likelihood they would still work full-time after age 65. But higher test scores indicated greater expectations of working past each age. Those scoring in the 84th percentile had 73 percent and 43 percent likelihoods, respectively, of working full-time after 62 and 65.
Planning for retirement is complex and can be difficult for many people to get right. Predicting one’s retirement income and expenses for years to come involves a substantial amount of uncertainty.
Not everyone is equally equipped to assess their options. Some may need more help with their retirement planning than others.
Full disclosure: The research cited in this post was funded by a grant from the U.S. Social Security Administration (SSA) through the Retirement Research Consortium, which also funds this blog. The opinions and conclusions expressed are solely those of the blog’s author and do not represent the opinions or policy of SSA or any agency of the federal government