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Do you plan on working to 65 or perhaps even later?
If so, it would be well worth coming up with a backup plan.
While 70% of people plan to work until 65, less than 30% actually do, according to Michael Conrath, chief retirement strategist for JPMorgan Asset Management. In fact, most retire by 62.
“It’s a big gap,” Conrath said in a recent episode of Decoding Retirement (see video above or listen below). “It just shows people have plans, and then life comes at them and things change.”
Sometimes, people make retirement decisions that are entirely within their control, Conrath said.
But that’s not always the case. Your company may downsize, or you may experience a health problem or disability. Sometimes, you become a caregiver. There could be any number of reasons, according to JPMorgan’s Guide to Retirement.
“What people have in mind years before retirement may not be where they land,” he said. “So you’ve got a plan for those what-if situations.”
Read more: Here’s what to do with your retirement savings in a market sell-off
At the same time, a significant number of workers will stay on the job. More than 27% of those ages 65 to 74 are still in the workforce, and even among those 75 and older, over 8% remain employed.
“Retirement is no longer this binary decision to work or to retire,” Conrath said.
That shift is clearly visible in the data. Using anonymized information from Chase banking customers, Conrath noted that the firm found that 53% of households are partially retired. These individuals are drawing from sources like Social Security, pensions, or annuities while still earning some wage income.
“There’s this hybrid approach,” Conrath said, and it comes with nuances.
Some people continue working simply because they enjoy it. “They love what they’re doing,” he said. “They love the social elements … they have a purpose.”
But others remain in the workforce out of necessity. According to Conrath, partially retired households tend to carry more debt and spend more, which influences their retirement timing. As a result, this group often transitions to full retirement later than those who retire all at once.
“They’re working to be able to maintain that spending but also pay off their debt,” he said.
Retirement savings checkpoints
A key part of planning is preparing for a time horizon that could span 35 years or more, partly due to living longer but also because you may retire sooner than expected.
“I think a lot of people, when left to their own devices, will sometimes plan based on averages,” Conrath said. “But you generally need to plan for a long life.”
If you planned to retire at 65 but ended up leaving the workforce at 62, that shift raises important questions. Retiring just three years earlier might not sound like a big deal, but financially, it can make a significant difference, as you’ll have fewer years to save and more years to fund.
That’s why it’s important, Conrath said, to carefully consider your options. You might look at claiming Social Security earlier, but that comes with trade-offs. Alternatively, you’ll want to assess whether your portfolio or other sources of income can help you bridge those extra years before full retirement benefits kick in.
This is where retirement savings checkpoints can help workers gauge whether they’re on track to fund their lifestyle in retirement.
Take, for instance, a household with an income of $80,000, which is roughly the median in the US for 2023. In that scenario, JPMorgan’s Retirement Guide suggests that a 30-year-old should have $90,000 saved for retirement, while a 65-year-old should have $615,000 saved (see chart below).
Read more: How much money should I have saved by 30?
These checkpoints are meant to be a starting point for the conversation, Conrath said. According to JPMorgan’s research, about 56% of US households haven’t even done a basic calculation to figure out how much they’ll need for retirement.
If you find you’re not on track, the aim of these checkpoints isn’t to induce fear or shame — it’s to provide clarity and guidance. And once you know where you stand, Conrath said, you can start taking steps to move closer to your retirement goals.
Accounting for retirement spending
Conrath also highlighted how retirement spending doesn’t follow a straight line, contrary to what many assume.
“I think historically people have thought that spending is this linear progression and you just spend to keep pace with inflation,” he said.
In reality, retirement spending tends to follow a “smile” pattern, Conrath said. Spending is typically higher in the early years, driven by travel, leisure, and lifestyle pursuits. It declines in the middle phase of retirement, and then rises again later in life, largely due to increasing healthcare costs.
“So, spending is not linear,” he said. “It adjusts over time. But it’s important to have a strategy that’s dynamic and flexible so you can account for that.”
The key, Conrath emphasized, is preparing for both the expected and the unexpected. That means creating a plan that not only funds long-term goals but can also adapt to near-term spending needs and lifestyle changes.
A time-honored rule of thumb suggests that you should plan on needing 70% to 80% of your pre-retirement income during retirement to fund your lifestyle. But in fact, JPMorgan’s research found that this conventional wisdom is not applicable to many households.
“These so-called rules of thumb, 70%, 80%, they can feel a bit broken,” he said.
Read more: Retirement planning: A step-by-step guide
In fact, income replacement needs vary significantly by household income. For example, those earning around $30,000 before retirement may need to replace as much as 104% of their income to maintain their standard of living, while households with a pre-retirement income of $300,000 may only need to replace about 55%.
One reason for this is simply differences in spending patterns, Conrath explained. Lower-income households typically spend all the income they receive out of necessity. In contrast, higher-income households tend to save more, which is encouraging given the size of the financial needs in retirement.
Another consideration is inflation, which often creeps up gradually and can quietly erode your portfolio and your purchasing power over time, Conrath said. That’s why it’s important to analyze inflation both broadly and by spending category.
“Not only do people spend differently in different ways over time, but things inflate at different rates as well,” he said.
One area that deserves special attention is healthcare — particularly Medicare — since its costs have historically increased much faster than overall inflation.
In fact, Conrath said many advisers treat healthcare inflation separately in their planning models, often using an annual estimate of around 6%, which aligns with projections from the Medicare Trustees Report.
As people age, healthcare needs typically grow, along with costs. That makes it critical to account for higher healthcare expenses in the later years of retirement, including the potential need for long-term care.
Each Tuesday, retirement expert and financial educator Robert Powell gives you the tools to plan for your future on Decoding Retirement. You can find more episodes on our video hub or watch on your preferred streaming service.
