(Over)optimistic Millennials and Gen Z wishing an early retirement

According to the latest Vanguard Digital Advisor survey, Millennials and members of the Gen Z generation are planning an early retirement as most of Gen Z (67%) and Millennials (61%) plan to retire before the age 65. Some are even more optimistic, as nearly a third of Gen Z (31%) and nearly a quarter of Millennials (22%) plan to retire before 60. Just to clarify, the survey counts as members of Gen Z people born from 1997 to 2002 and as Millennials all born from 1981 to 1996. More results from the Vanguard survey below [1].

So what’s going on and why would Millennials and Gen Z think they will be able to retire early, as on the other side the legal retirement age, at which employees can start receiving public pension, is increasing all over the globe. In the US the full benefit age is currently 66 years and 2 months for people born in 1955, and it will gradually rise to 67 for those born in 1960 or later. In the UK the state pension age is currently 65 and will gradually increase to 67 by 2028.

Optimism bias

Optimism bias can partly explain the survey results as behavioral and neuroscientists established humans have a natural tendency to overestimate the probability of positive future events and underestimate the probability of negative ones. Here the positive outcome is obviously being able to retire early. 

Nobel Prize-winning economist Angus Deaton explains that one possibility is, that overoptimism is biologically built into human beings as we need to believe that the future is going to be better than today, or else we wouldn’t be as motivated to survive and that optimism bias may be part of the normal healthy brain. Deaton analysed in his National Bureau of Economic Research paper data of 1.7 million individuals across 166 countries from 2006 to 2016 for the Gallup World Poll and found people to be weirdly hopeful about their future [2]. 

Photo by Lynnelle Richardson on Pexels.com

One of the leading neuroscientists researching optimism bias is Tali Sharot. She describes it as a cognitive illusion that developed during our evolution as the answer to another unique human ability of conscious foresight (mental time travel). This ability enables us to think about ourselves in the future and by doing this we can, among other things, also imagine our own death or other bad things. The reasoning goes, optimism bias developed as an answer to this, as without developing positive biases during evolution, we could not function normally every day knowing death is around the corner [3]. For more info on optimism bias you can check out a great TED talk from Tali, where she also shares some fun experiments exposing our over-optimistic outlooks. 

Older workers too optimistic about their ability to work

If young workers are too optimistic about when they will be able to retire, the older workers are influenced by optimism bias in a different way, as most of them overestimate their ability to work.  

The Health and Retirement Study from the Center for Retirement Research at Boston College reveals roughly 37% of those working at age 58, in the end, retired earlier than they were planning [4]. Prudential’s latest study also reveals the similar gap in optimistic outlooks and reality as 51% of retirees in reality retired earlier than planned. Only 23% retired earlier than planned voluntarily, meaning they had enough money saved or were just tired of working. The majority of those who retired earlier than expected did so involuntarily. 46% because of health problems, 30% were laid off or offered an early retirement package, and 11% left work to take care for a loved one.

Retiring early has a big negative impact on income in retirement, because of lower social security and also lower private savings due to a shorter saving period. The last few years before retirement are important to building our retirement nest egg as they are on average also our top-earning years and losing just one year can influence our quality of life for the whole retirement.

High cost of overoptimism

So our overly optimistic outlook of the future can have dire financial consequences for our retirement and we need to acknowledge this and factor it in our prediction on when we will be able to retire, or on the other side how long we will be able to work. Let’s keep in mind life is not always just about the optimistic scenario and the current pandemic can serve as a grim reminder of this and let’s make calculations also for the pessimistic scenario. This way, we will be good either way.   


[1] A Vanguard Digital Advisor survey. The Vanguard Group, 2020.

[2] Deaton, Angus. What do Self-Reports of Wellbeing Say about Life-Cycle Theory and Policy? NBER Working Paper No. 24369, 2018. 

[3] Sharot, Tali. The optimism Bias – A Tour of the Irrationally Positive Brain. New York, NY, US: Pantheon/Random House, 2012.

[4] Munnell, Alicia H., Sanzenbacher, Geoffrey T. & Rutledge, Matthew S. What causes workers to retire before they plan? Center for Retirement Research at Boston College, 2015.  

Published by Ziga Vizintin

Nudging people to save for retirement one nudge at a time.

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