Does Socioeconomic Status Lead People to Retire Too Soon?

Working longer is a powerful lever to enhance retire­ment security. Individuals, on average, are healthier, live longer, and face less physically demanding jobs, so they should be able to extend the number of years worked. But averages are misleading when differ­ences in health, job prospects, and life expectancy have widened between individuals with low and high socioeconomic status (SES). Thus, a single prescrip­tion for all no longer seems appropriate. Rather, it is important to know: 1) how long individuals in differ­ent SES groups have to work to maintain their pre-retirement standard of living; 2) how long they plan to work; and 3) what explains any gap between the two. This brief, based on an earlier paper, uses the Health and Retirement Study (HRS) to document the disparities across SES quartiles both in the ages at which households will meet their retirement income targets and in their planned retirement ages. It then uses regression analysis to determine the extent to which any gap between the target and planned ages is associated with SES, as opposed to demographic/financial characteristics or health, marital, wealth, or employment shocks that occur before the HRS inter­view but too late for the household to adjust its saving (between ages 50-58). The analysis uses education as the SES metric, because educational attainment is de­termined early in life and affects, but is unaffected by, the focus of this research – late-career labor market activity. The discussion proceeds as follows. The first sec­tion calculates how long individuals in various SES categories have to work to maintain their standard of living. The second section discusses their planned retirement ages and determines the extent to which gaps between planned and target retirement ages exist by SES category. The third section uses regres­sion analysis to assess how SES category is related to the gaps, controlling for both demographic/financial characteristics and shocks. The final section con­cludes that households in lower-SES quartiles have larger retirement gaps than their higher-income coun­terparts, even after controlling for other household characteristics and shocks.