Vanguard Study Shows Retirement is “Work and Play” for Many Americans

The conventional view of retirement—working full-time until a set date in your 60s and then shifting to full-time leisure—does not match the experiences or the expectations of many Americans, according to a national study released today by The Vanguard Group. Indeed, a majority of Americans age 40-69 expect work to play an important role in their early years of retirement.

The Vanguard® study, “Six Paths to Retirement,” found that Americans approach retirement in a variety of ways,

many of which involve “downshifting”— that is, reducing work hours at older age or taking a part-time or less stressful job. Nearly two in three respondents age 55-69 have downshifted already or plan to do so in the future.

“The widely held belief is that the transition from work to retirement is a sudden, even abrupt, event, with individuals shifting to a care-free life of travel and recreation,” said Steve Utkus, Principal, Vanguard Center for Retirement Research. “Our study reveals that the transition is much more gradual, as many Americans participate in some type of work in their early retirement years.”

Decisions about work and leisure are driven largely by financial resources, including assets in employer plans and personal savings, but also by issues such as health and personal preferences. Based on the work histories of older Americans, Vanguard found that six distinct paths emerged as individuals transitioned from work to retirement. Three-quarters of older Americans found themselves on one of the three main paths:

* Still Working. The largest group of respondents (35%) left full-time work in their 60s, yet continued with some type of self-employment or part-time job thereafter. Financial necessity was cited as an important reason for continuing to work.
* Early Retirees. Nearly 30% of the survey respondents left the full-time workforce in their 50s and did not work again. This group fit the conventional view of retirement, but retired much earlier than is typical. Adequate financial resources, in pensions, 401(k)s, and personal savings accounts, were key in making this transition.

* Work and Play. Some 12% of respondents retired from full-time work in their 50s, but quickly took on high levels of part-time work or self-employment. Generally, this group of semi-retirees resumed working to enjoy themselves, to stay active, or to earn discretionary income. The ability to retire in their 50s was also made possible by more generous financial resources.

One-quarter of Americans follow three other paths. The Never Retire path (10% of respondents) includes those individuals who say they never plan to stop working; the Returnees path (5% of respondents) are those who retired early but then returned to work for financial and psychological reasons; and the Spouse’s Retirement path (9% of respondents) represent individuals who had lower participation in full-time work in their 40s and 50s and pegged their retirement to that of their spouses.

“For many Americans, it is clear that work plays a much more important role in financing the early years of retirement—by choice or by financial necessity,” said Mr. Utkus. “Work is sometimes cited as a potential safety valve for the upcoming retirement of the Baby Boom generation. But it appears that this trend has been underway for many years. The so-called ‘new retirement’ of the Baby Boomers may not be so new after all.”

The Vanguard study had two components: 1) A qualitative portion consisting of interviews with 38 men and women, age 40-75, and 2) a quantitative component containing a survey of nearly 2,500 respondents age 40-69 from the national online panel of Harris Interactive, Inc.