There is No Such thing as the American Retirement

Episode Description

In this eye-opening episode, Brandon challenges everything you thought you knew about retirement in America. Through historical context and current data, he reveals why the concept of "American Retirement" is actually a myth – and what that means for your financial planning strategy.

Key Takeaways

• The average American retires at age 62 – not 65, 67, or 70 as commonly suggested by financial planners
• Nearly 40% of retirees return to work in some capacity, with 50% odds if you retire in your 50s
• 30% of retirements are triggered by health issues rather than financial readiness
• Retirement income sources vary dramatically across Americans, with no single "correct" approach
• Most Americans have no formal retirement plan – they simply work with whatever resources they've accumulated

Episode Outline

Introduction

Why we think of retirement as a single, defined life event when the data suggests otherwise

Part 1: The Retirement Origin Story

• How retirement systems were created for political control, not individual benefit
• Roman military pensions to prevent soldier rebellions
• Otto von Bismarck's 1889 German pension system to manage workforce transitions
• The rise and fall of the American pension system
• The shift to 401(k) plans and individual responsibility

Part 2: The Age Retirement Begins

• Why Americans retire at 62 despite optimal ages being later
• Historical trend of retirement age increasing from 57 (1991) to 62 (today)
• The disconnect between financial planning advice and reality

Part 3: Return to Work

• 40% of retirees eventually return to work
• Equal split between financial necessity and desire for social/intellectual stimulation
• 16% of retirees find retirement more boring than anticipated

Part 4: The "Typical" Retirement

• Massive variation in retirement timing, activities, and income sources
• TV watching as the dominant retirement activity (4+ hours daily)
• Social Security as the only near-universal income source
• Even split between traditional retirement accounts, general savings, real estate, and annuities
• Most Americans have no formal plan – "things just worked out that way"

Conclusion: What This Means for You

• Focus on income replacement capability, not arbitrary savings targets
• Build flexibility rather than following rigid retirement templates
• Develop multiple income streams instead of relying on single sources

Transcript

00;00;00;00 - 00;00;48;21
Brandon
You are listening to the Yield to Reason podcast, where we strive to help you build the most important part of your retirement strategy. Because a retirement plan built with robust income sources is a retirement plan built for success. I am Brandon Roberts. This is episode number 11. And today I have some news for you. There is no such thing as the American retirement.

00;00;48;23 - 00;01;17;19
Brandon
It's time to get serious about something that doesn't actually exist. As we set off on a journey to help you build the retirement you deserve and the one you actually want. We talk a lot about retirement as if it's an event. It's a thing. There's a way to do it a right way and a wrong way. We act as if everyone is on a conveyor belt, headed towards this eventual time in their life.

00;01;17;21 - 00;01;38;13
Brandon
There are various actions you take to prepare to perform the things you should be tracking and doing to ensure you are ready for this event. Retirement that everyone enters into. But it doesn't actually exist and it most likely never did. Let me walk you through why I believe this, and more importantly, what it means for you and how you should be thinking about your financial future.

00;01;38;15 - 00;02;12;09
Brandon
My opinion on this, by the way, comes after hours and hours spent researching the typical American retirement, trying to find what is the general makeup of how people go about retirement, how they produce income for themselves or provide for themselves financially and what they spend their time doing. And what I found is it was really difficult to identify a specific American retirement, and I'm going to walk you through all of that as well as give you why I think that is.

00;02;12;11 - 00;02;39;24
Brandon
But first, let's start with just a little bit of history. The origin story, if you will. Throughout human history, retirement systems were largely pushed upon societies for political reasons. This isn't because people were trying to help each other up achieve financial freedom. It really had more to do with solving societal problems. Take the Romans. They basically created the original military pension, and they did it out of worry over soldier rebellions.

00;02;39;27 - 00;03;11;08
Brandon
What's the best way to keep your military from overthrowing the government? Give them something to lose. Create a pension system so the veterans stay loyal, so to speak. The Germans under Otto von Bismarck in 1889 established what was kind of today's modern retirement system. It was a state pension system that was not created out of benevolence, but really a system founded to solve a very significant societal problem.

00;03;11;11 - 00;03;42;19
Brandon
You see, at this time, there were a number of older workers who were remaining in the workforce and a large segment of the population that was quite young and very much unemployed. So the system to incentivize those older workers to leave the workplace and now employ those younger, restless Germans was put in place as a way to stop unrest among a young, largely unemployed segment of the population.

00;03;42;21 - 00;04;22;23
Brandon
The United States faced mounting social pressure to adopt some sort of system similar to what was being created in Europe at the time, to allow for older Americans opting out of the workforce. Today, we often think of Social Security as the public policy initiative that likely led to the United States adopting a retirement system. But the truth about Social Security is its original idea was more how to handle those who had become so old and so physically incapable of working, that they weren't just begging for money and food on the streets.

00;04;22;25 - 00;04;48;04
Brandon
You didn't become eligible for Social Security when it first rolled out until you were, well, past life expectancy. Instead, it was the American pension system, the retirement plan that has largely gone away. If you work in the private sector, that really showed up to solve the problem of moving older, less productive employees out of the workforce and bringing in younger, more productive individuals.

00;04;48;06 - 00;05;15;17
Brandon
But then, as many of you likely know, the pension was handed a considerable defeat at the end of the 20th century, when enterprising Americans crafted a tax favorable retirement account from tax code verbiage that led to the establishment of the 401 K plan, and with it, a whole new segment of the financial planning industry is born, one that is focused on helping everyday Americans plan out their retirement.

00;05;15;19 - 00;05;40;04
Brandon
But if we were to assume that the establishment of things like the 400 and K and even the IRA and the financial industries decision to focus intently on the task of helping all Americans plan out their finances for retirement is the system that would ultimately lead to a better, happier retirement with higher degree of success and perhaps even an earlier age?

00;05;40;04 - 00;06;03;01
Brandon
At retirement onset, you would be, I'm afraid, sorely mistaken. If I were to ask you what the average age for retirement is in the United States, what would you guess? Would you tell me something like age 65 seems to be a number that we talk about a lot, has a lot to do with eligibility for Medicare. That's the age that you will become eligible.

00;06;03;03 - 00;06;27;10
Brandon
How about 67? That's the age that Americans right now become fully eligible for Social Security without any kind of reduction in their benefit. If you guessed either one of these numbers, it's understandable because they're talked a lot about in financial circles, specifically around retirement planning. But I'm afraid you'd be wrong. The average age an American retires is 62.

00;06;27;12 - 00;06;57;14
Brandon
Now, 62 being the average age might sound like early retirement to many of you, but unfortunately, this is not the result of higher savings or better retirement planning creating an earlier retirement. The trend has actually been moving the average retirement age out later, not sooner. In 1991, the average retirement age was 57. In 2002, it was 59. So at 62 today we're working longer than previous generations, not shorter.

00;06;57;16 - 00;07;23;17
Brandon
So with all the financial planning advice points to the ages of 65, 67 or 70 as optimal retirement ages, why is everyone retiring at age 62? What's driving this disconnect between the advice and the reality? And by the way, even if you do retire at age 62, or any age for that matter, the data shows us there's a very, very good chance you're going to go back to work anyway.

00;07;23;19 - 00;07;48;01
Brandon
Research tells us nearly 40% of Americans who retire eventually return to work in some fashion. Think about that number four out of ten people who retire end up working again. Retiring early significantly increases the chances that you'll return to work if you retire in your 50s. There's a roughly 50% chance you'll go back to the workforce at some point.

00;07;48;03 - 00;08;10;28
Brandon
Now, you might assume this is always about financial hardship. People who didn't save enough money, being forced back to work. But that's not what the data shows us. Just just about as many Americans cite a need for social or intellectual stimulation as their motivation to return to work after retiring, as do the number of Americans who cite needing the money.

00;08;11;00 - 00;08;43;09
Brandon
This isn't necessarily about financial failure. 16% of Americans report finding retirement more boring than they anticipated. Most Americans are happier in retirement than when they were working. But those who are not most frequently cite being bored as the primary cause of their lack of happiness. So we have people retiring earlier than the optimal ages suggested by financial planners, and then a significant percentage of those people going back to work, sometimes for the money and sometimes for fulfillment.

00;08;43;11 - 00;09;08;16
Brandon
I bet you didn't notice that footnote on the back of the retirement brochure. When it comes to the typical American retirement. There simply is no typical, as we already mentioned, when it comes to timing, there's a large divergence between when people plan to retire and when they actually do. Most people plan to retire somewhere in their mid to late 60s, but the current average age is 62.

00;09;08;18 - 00;09;29;07
Brandon
And we discuss this average has been increasing from the late 50s back in the 90s. But timing is just the beginning of the variation. And sometimes things don't work out as planned. Nearly 30% of all retirements are brought on by health issues. So three out of ten people don't choose when to retire. Their bodies make that choice for them.

00;09;29;10 - 00;10;01;00
Brandon
And what about activities? The dominant activity Americans spend their time doing in retirement is TV watching averages a little over four hours per day. But outside of that, retirement activities vary wildly. Some people travel, others volunteer, some start new businesses, other focus on family. Some pursue hobbies they never had time for during their working years. But the biggest variation of them all is how exactly Americans go about providing for themselves financially once they are no longer working.

00;10;01;03 - 00;10;28;14
Brandon
Not surprisingly, Social Security income is extremely common among those who identify themselves as retired. In fact, it's probably the only universal element we can really pinpoint when it comes to retirees. Vaguely defined as those who have stopped working and are of a certain age. Now, if you ask these people about their assets, most of them will tell you that they do, in fact, have retirement saved assets.

00;10;28;16 - 00;10;52;02
Brandon
But the specific makeup of those assets that varies considerably. There are a number of people who do confirm that they have a retirement style account, something like an IRA or A401K. This is by no means the majority of retirees, though. A number of people choose to save in other ways, like general brokerage account or the savings account at the bank.

00;10;52;04 - 00;11;20;03
Brandon
But just as many people list real estate and annuities as their primary mechanism for providing for themselves financially in retirement. But here's the most telling piece of data for most Americans. The specific plan is that there is no plan. They have what they have because things just kind of worked out that way. There was no grand strategy, no carefully orchestrated wealth building plan, no optimal path that they followed to retirement success.

00;11;20;06 - 00;11;48;08
Brandon
Just life happening and people making it work with whatever resources they managed to accumulate along the way. So American retirement is extremely varied, which means there is no right or wrong way to approach retirement because we're not all heading towards the same destination. A lot of people are doing retirement in so many varied ways, but there's no clear winner in terms of the right choices or the wrong choices.

00;11;48;11 - 00;12;33;08
Brandon
The idea of this podcast episode actually started by my researching the ways that Americans traditionally create retirement income. And what I wanted to do with that was show you, the audience, that there are different avenues one can follow to achieve retirement success, and that people aren't necessarily going to all do it the same way. But the tricky thing in doing this research, and what has led me to the actual topic that we're discussing today, is the fact that there really isn't anything in terms of an actual event, a way that people, on average, approach these things.

00;12;33;08 - 00;13;04;20
Brandon
There's not even a really good breakdown of how many people in retirement use their IRA for income, for example, or how many people in retirement generate X amount of a percent of their income from real estate, rentals or things of that nature. That data simply does not exist in any large, reliable way. There are some pieces of research out there, done mostly by people with special interests, to show that a certain percentage of people might own a certain asset.

00;13;04;20 - 00;13;22;02
Brandon
For example, the insurance industry loves to give us data on how many people have, for example, used an annuity in retirement or how much of it has created guaranteed income for them. And they kind of massaged the data in a way to highlight that product for the sake of trying to convince more people they should buy an annuity.

00;13;22;05 - 00;13;45;20
Brandon
But in general, we don't see really great research that shows us exactly how people go about creating income in retirement. Nor do we have any great data that shows us how people are actually doing it. The one thing, the one thing we do see consistently is something that I have brought up before, and that's the fact that most people don't like spending the money that they have saved.

00;13;45;20 - 00;14;24;15
Brandon
Instead, they want to rely on income sources, generally Social Security and pension, and to a lesser degree, annuities as their way of creating a retirement budget. But they don't really love the prospect of spending down the 400 and K or IRA assets that they've accumulated, even in the face of something like the 4% rule, which is withdrawing 4% of your account balance on the the day that you retire, and then making adjustments for inflation to that withdrawal rate or that that number as time goes on, being a roughly safe maximum withdrawal rate, according to some data that was done way back into the 80s and 70s, leading up to a, article that was published

00;14;24;15 - 00;14;48;05
Brandon
in the 90s in a professional publication for financial, retirement professionals. This all got me wondering, well, if I'm having such a difficult time finding the average breakdown of how people go about generating income, what luck will I have? Finding other aspects of retirement? Like when does the average retiree retire? Or what does the average retiree spend their time doing?

00;14;48;05 - 00;15;15;14
Brandon
And it turns out it's quite varied. Even that statistic that tells us the average retirement starts at age 62 is itself quite varied. Yes, that is the average. If we work with the raw data and calculate the average. But it turns out there's some variation. There's geographic variation, for example, people who live in certain parts of the country, but Washington DC happens to have a fairly late retirement age, whereas people who live in more rural, places.

00;15;15;17 - 00;15;37;15
Brandon
Alaska has a relatively early retirement age. Gender differences are also identifiable. Women tend to retire earlier than men, and it's also generally the case that the more money you make, the longer you stay at your job. So the later you retire. Stumbling upon the return to work data was the most, most eye opening for me. Though I know the number of people do return to work.

00;15;37;15 - 00;16;01;29
Brandon
But the reason, the reasons that are outside of just financial hardship, things like I'm bored. This isn't what I thought it was going to be. It plays a relatively large role in the decision making to return to work for a number of people. Once they enter retirement. So if there is no single American retirement, what does that mean for you and how you should be thinking about your financial future?

00;16;02;01 - 00;16;34;08
Brandon
First, it means you can stop stressing about whether or not you're following the right retirement plan, because there is no right retirement plan. There are thousands of different approaches that work for different people in different circumstances. Second, it means the financial services industry's one size fits all approach to retirement planning is fundamentally flawed. When someone tells you that you need exactly $1.2 million to retire, or that you must work until you reach 67, or that you need to have an ability to create 80% of your pre-retirement income.

00;16;34;14 - 00;17;11;15
Brandon
You really need to ask them how they came up with those numbers. Because the data shows us that successful retirees have income levels and asset bases all over the spectrum, and they are doing just fine. Third, it means flexibility is more important than hitting arbitrary targets. Since we can't predict exactly when we'll stop working or what our post-work life will look like, or why our our post-work life will even begin, we need financial structures that are adaptable and capable of providing us with the resources that we need to provide for ourselves, financially speaking.

00;17;11;17 - 00;17;41;24
Brandon
But most importantly, it means we need to focus on the one thing that does matter universe, and that is your ability to generate income when you can't or don't want to work anymore. Whether that income comes from savings, investments, real estate, business ownership, part time work, social security, pensions, or any combination of these sources doesn't matter. What matters is that you have multiple ways to replace your employment income when employment ends.

00;17;41;26 - 00;18;09;05
Brandon
The people who struggle in retirement aren't necessarily the ones who didn't save enough money. They're the ones who put all their eggs in one basket. Whether that basket was their job. Therefore, when their house, their business, whatever, and then found themselves without alternatives when that single source of security disappeared or showed to be inadequate. The people who thrive in retirement are the ones who built multiple income streams and maintained flexibility in their approach.

00;18;09;07 - 00;18;30;10
Brandon
Now, thriving means different things to different people. For some, it means going on vacations, seeing the world. For others, it means having the flexibility to hang out with their family and do what they want. Still others might really want the capacity to help friends and family members pay for certain things that maybe they were struggling to afford beforehand.

00;18;30;12 - 00;18;55;27
Brandon
There will certainly be a group of people who have all the resources they could ever think to need, generating income for them, despite their desire to continuously be productive in the workplace. That, in essence, is a form of retirement, even though they're not traditionally following the line of I'm done working and now I'm going to hang out and play shuffleboard, or if I'm going by the statistics watching TV.

00;18;56;00 - 00;19;19;17
Brandon
I know I use the word retirement a lot on this podcast, and there are times I do catch myself and try to get away from that because I want the focus on income generation to be much more about financial freedom than I do retirement necessarily, which is to say that people don't have to retire just because they build adequate passive income to provide for their income needs.

00;19;19;19 - 00;19;52;00
Brandon
It means they have the flexibility to do the things they want to do, because the question where is the money going to come from is already answered from my assets. Many people who do this successfully will choose not to retire in the traditional idea. A number of people who have embraced the notion of fire have saved quite significantly and successfully built up income sources that are passive to them, and achieved the goal of early retirement.

00;19;52;02 - 00;20;24;20
Brandon
But a number of them don't necessarily just stop working and join a world of retirement in the sense that it has been kind of narrated to us by the financial services industry. This one where we now go on vacations, or we sit at home and watch TV, know a number of these people have the income they need to pay the bills, but they continue to go out and pursue productive projects because that's what they need to do to feel fulfilled.

00;20;24;22 - 00;20;45;28
Brandon
Now, if you're listening to this and you think that's all great, but honestly, I would like to just quit working and stay at home and do nothing because that is what I want to do. That's fine too. Nobody says you have to do certain things after you are retired that are contributing to society or adding to the the, the knowledge base of, of the United States or the world or any of that kind of stuff.

00;20;46;05 - 00;21;08;04
Brandon
If retirement to you means you have plenty of leisure time to enjoy life as life was meant to be enjoyed. There's nothing wrong with that. And that might realistically come with the sacrifice of being able to afford certain things. And again, there's nothing wrong with that necessarily. So as you can see, retirement means so many different things to so many different people.

00;21;08;04 - 00;21;29;20
Brandon
And there is not a single retirement that we follow, a system that we march towards. And then everybody just decides, well, now it's off to the land of four hours of TV every day, and then a few hours of playing with the grandkids, and then maybe an hour or two of of working on my, my woodworking hobby or learning to play the piano or some crazy thing like that.

00;21;29;20 - 00;21;51;02
Brandon
No, it's it's going to be much, much more diverse in terms of what people want to do and choose to do than that. So there's never going to be a sum of money that you need to save in order to do those specific things. Rather just a focus on how I build income passively to give me the flexibility to go do the things I want to do.

00;21;51;05 - 00;22;18;02
Brandon
Ultimately, the American retirement is a myth. It's a convenient fiction that makes it easier for the financial services industry to sell products, and for employers to manage workforce transitions. But it's not a reality. Reality is messy and it's varied. Reality is people figuring it out as they go, making adjustments when circumstances change, and finding ways to make their resources work for their specific situation.

00;22;18;05 - 00;22;42;15
Brandon
Some people stop working at 55 because they have to. Others work until 75 because they want to. Some have million saved. Others get by on Social Security and creative resourcefulness. Some are blissfully happy in retirement. Others go back to work because they're bored and they're all doing it right. Because there's no wrong way to do something that doesn't actually exist.

00;22;42;18 - 00;23;07;19
Brandon
Your job isn't to follow someone else's retirement template. Your job is to build the financial foundation that gives you the options to do the things that you want. To build income. To stay flexible. To plan for the unexpected. And remember that there's no conveyor belt carrying anyone towards a predetermined destination. There's just you making choices, building resources, and creating the life you want to live.

00;23;07;21 - 00;23;36;07
Brandon
And that, honestly, is the best thing about it. So stop thinking about retirement as retirement and start thinking about it as the goal of eventually achieving a situation where you get to go do the things you want to do when you want to do them. And that's all I got for you today. But don't worry, I'll be back next week with more tips and tricks to help you build a rock solid point in your life where you get to do the things you want to do.

00;23;36;10 - 00;23;52;29
Brandon
Until then, please, please remember real wealth doesn't just add up. It writes, checks.