What the Research Can Tell us about Retiring

It’s difficult to envision what life will look like on the other side of the consequential decision to retire.

But research can help demystify what lies ahead – about the decision itself, the financial challenges, and even the taxes. Readers understand this, as evidenced by the most popular blog posts in the first three months of the year.

Here are the highlights:

The retirement decision. The article, “Retirement Ages Geared to Life Expectancy,” attracted the most reader traffic. Myriad considerations go into a decision to retire. But a sense of whether one might live a long time – because of good health or simply seeing that parents or neighbors are living unusually long – is a compelling reason to postpone retirement either to remain active or to build up one’s finances to fund a longer retirement.

A recent study found that as men’s life spans have increased, they have responded by remaining in the labor force longer, especially in areas of the country with strong job markets and more opportunity. This is also true, though to a lesser extent, for working women.

The planning. The second most popular blog was, “Big Picture Helps with Retirement Finances.” It described the success researchers have had with an online tool they designed, which shows older workers the impact on their retirement income of various decisions. When participants in the experiment selected when to start Social Security or how to withdraw 401(k) funds, the tool estimated their total retirement income. If they changed their minds, the income estimate would change.

The tool isn’t sold commercially. But it’s encouraging that researchers are looking for real-world solutions to the financial planning problem, since the insights from experiments like these often make their way into the online tools that are available to everyone.

The taxes. It’s common for a worker’s income to drop after retiring. So the good news shouldn’t be surprising in a study highlighted in a recent blog, “How Much Will Your Retirement Taxes Be?” Four out of five retired households pay little or no federal and state income taxes, the researchers found. But taxes are an important consideration for retirees who have saved substantial sums.

The average retired households with income in the top 20 percent can expect to pay 11 percent of their income in state and local taxes – in large part because they are taxed on the money they withdraw from 401(k)s, IRAs, and other financial assets. The average balance in this group’s accounts is nearly $770,000.

The preparation. About half of workers aren’t doing enough to ensure they can maintain their standard of living after retiring. But a couple of recent articles show only halting progress on their financial preparations. On the one hand, baby boomers are chopping down their mortgage debt, according to a study described in “Boomers Repairing their Mortgage Finances.”

But another study, featured in “Smaller Pensions Don’t Spur Saving,” shows that state and local government workers who have less generous pensions than their counterparts in other jurisdictions are only slightly more likely to participate in their employers’ supplemental savings plans.

In the event that state and local employers cut pension benefits or cost-of-living increases, the researchers concluded that “employees are unlikely to replace that income with outside savings.”

Not all of the most-read blogs in the first quarter were about retirement. Here are five others:

• “Alzheimer’s: from Denial to Empowerment”
• “Struggling Workers’ Financial Woes Mount”
• “Federal Minimum Wage is 40% Below 1968”
• “Converting a Desire to Save into Saving”
• “Who Applies for Disability – and Who Gets It”

The research studies reported herein were derived in whole or in part from research activities performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement and Disability Research Consortium.  The opinions and conclusions expressed are solely those of the authors and do not represent the opinions or policy of SSA, any agency of the federal government, or Boston College.  Neither the United States Government nor any agency thereof, nor any of their employees, make any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report.  Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.