Employees With 401(k)'s Retire Later

If you want to retire young, you'd be well advised to find a job that still comes with a traditional pension and health benefits for retirees. Employees entitled to defined-benefit retirement plans that guarantee income for life are more likely to retire at any age than employees who have only defined-contribution retirement plans like IRAs and 401(k)'s, according to an analysis of workers over age 50 by consulting firm Watson Wyatt.

Stock market booms and busts also influence the timing of retirement among workers with defined-contribution plans. Employees are more likely to retire at market peaks and delay retirement during downturns. This phenomenon often puts employees' goals at odds with those of their employers. "When the market booms, defined-contribution plan participants might retire just when companies need to add workers, and when there are market busts, defined-contribution plan participants might stay at work just when companies want to reduce the size of their workforce," says Mark Warshawsky, director of retirement research at Watson Wyatt.

Even a financial windfall of $100,000 doesn't prompt workers to retire the next day, although the source of income makes a difference. An extra $100,000 in expected income from a pension plan or Social Security is more likely to lead to earlier retirement than an increase in home equity or a 401(k) account balance—or even winning $100,000 in the lottery, Watson Wyatt calculated. Meanwhile, the promise of an extra $100,000 for continuing to work makes employees more likely to stay on the job.

Health insurance seems to be the deal maker or breaker in retirement planning. Older workers tend to have more health problems and often face steep increases in premiums. Having health insurance that's conditional on employment strongly discourages retirement, according to Watson Wyatt. But employees are more likely to retire if they have an alternative source of health insurance, such as employer-sponsored retiree health insurance, eligibility under a spouse's plan, government health insurance like Medicare, and COBRA coverage.

Tell us, are you delaying retirement because your 401(k) or IRA isn't doing well or because you need the health insurance?