Many workers are delaying retirement because of rising longevity, economic uncertainty, and a lack of adequate retirement savings.
by Jay Peroni, CFP®, FTMDaily.com Contributing Writer
The days of retiring early seem to be over. Far too many Americans have failed to properly plan for retirement, been stung by the financial and real estate crisis, or have not saved enough to live comfortably in retirement. However, advances in medicine and overall job satisfaction are also keeping workers in the workplace much longer.
A recent poll by the Associated Press-NORC Center for Public Affairs Research shows that half of older workers have delayed their retirement plans. The study revealed some interesting trends:
- 82% of working Americans over 50 say it is at least “somewhat likely” they will continue working for pay, even in retirement.
- 47% of working survey respondents now expect to retire later than they previously thought and, on average, plan to call it quits at about 66, or nearly three years later than their estimate when they were 40.
- Men, racial minorities, parents of minor children, those earning less than $50,000 a year, and those without health insurance were more likely to delay their retirement plans.
Many investors saw their retirement nest eggs (401Ks, IRAs, and other investment savings) drop by 30%, 40%, or more during the 2008-9 financial crisis. The collapse of their financial nest eggs left them little choice but to delay retirement. The NORC poll confirmed this as 78% cited financial needs as an important factor in deciding when to retire. The need for health insurance coverage from an employer was also a leading reason for continuing to work.
This is just another sign that we are witnessing a major shift in the U.S. labor force. Until the dot-com bust of 2000, labor force participation rates for seniors had been on the decline as newly minted retirees enjoyed soaring investment portfolios throughout the booming 1990′s. Today, all of that has changed with older adults representing the fastest-growing segment of the American workforce. By 2020, it is estimated that Americans 55 and older will make up 25% of America’s total labor force.
The number of currently retired job seekers is also on the rise. The NORC poll showed that among those who retired, 4% were looking for a job and 11% had already started working again. Almost 50% of those who were still working said they are “very likely” or “extremely likely” to do some work for pay in retirement, while 35% said they are “somewhat likely” to continuing seeking new sources of income. So, in other words, less than 20% of Americans surveyed said they expected to stop work completely upon retirement.
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Another well-documented trend that is impacting the U.S. labor force is the increasing lifespans made possible by technological advancements in medicine and disease therapies. As medical technologies, drugs, and healthcare have advanced, Americans are living longer. Of course, a longer lifespan requires a larger nest egg, in order to sustain retiree’s lifestyles. The looming threats of higher taxes, rising inflation, and increased medical costs, however, are a source of major concern for many retirees.
Additionally, the fact that Americans lack an adequate amount of retirement savings was once again confirmed by this survey. Here are a few of the alarming numbers revealed in the survey:
- 1 in 6 Americans reported having less than $1,000 in retirement savings.
- 1 in 4 working respondents admit that they are not saving for retirement outside of Social Security.
- 12% of current workers reported borrowing from a 401(k) or other retirement plan in the past year.
- Only 29% of respondents reported at least $100,000 in savings.
Most financial advisors typically suggest that retired clients withdraw no more than 4-5% of their retirement savings per year in order to prevent a premature depletion of their nest egg. Based on those numbers, a $100,000 nest egg in retirement will only generate $4,000-$5,000 of income per year!
Baby boomers are being urged by financial experts to work until full retirement age, and even beyond. For those born from 1943-1954, “full” retirement age is considered to be age 66 for Social Security income purposes. For those born in 1960 or later, the “full” retirement age increases to 67. This number should continue rising as the Social Security crisis becomes more of a central issue in American politics.
So, what about you? Should you work past age 65?
There are at least five financial reasons why delaying retirement may make sense for your situation:
1. By delaying retirement, your Social Security check could increase. Most people claim their Social Security benefits before reaching full retirement age. But this could be a very costly mistake for many. For example, someone born in the 1950s taking retirement at age 62, instead of full retirement age at 66, will receive 25% less in monthly Social Security benefits.
2. Your retirement savings could increase. Delaying retirement will allow you more time to save and increase your retirement nest egg. These extra years will help you accumulate extra funds for the next stage of life. Often the longer you work, the larger the income you receive as well so you may be able to save more as you reach your peak earnings years.
3. You can reduce or eliminate debts. In my 17 years of retirement planning, I have found that the majority of those who have had a successful retirement, retired debt-free. Those who had the most problems and were forced back into the workplace were those who approached retirement with significant debt. They not only had mortgage balances, but some also had significant credit card, auto loans, business loans, and student debt.
Debt is becoming a major headache for baby boomers. A recent Securian Financial Group survey found that 67% of those polled anticipated retiring with an outstanding mortgage. Retiring with your home paid off and little to no credit card or other debts will help put in a better financial position as you will have fewer expenses to cover.
4. You may have longer access to health insurance. Many employers sponsor health plans providing expensive health coverage. If you leave work before age 65, you will be unable to get Medicare, which doesn’t kick in until age 65. So you will have to shop around for your own health insurance, sign up for Obamacare, or live without coverage. Working to retain health insurance can be a great financial reason to stay on the job.
5. You may be able to delay Required Minimum Distributions (RMDs) from your workplace retirement plan. If you have a traditional IRA, SIMPLE IRA, or a SEP-IRA, you must take Required Minimum Distributions from those accounts after turning age 70½. It doesn’t matter if you are still working or retired, you must take a distribution or face a stout 50% IRS penalty on the distributions not taken.
However, if you have a plan at work you may have more flexibility. Generally 401(k)s, 403(b)s and 457(b)s have some exceptions that allow you to wait until the year in which you retire to take your first RMD from those accounts. So if you work past age 70 you could potentially delay distributions and keep your nest egg growing for a longer period of time.
Finally, above and beyond the financial reasons… Many studies have shown those working longer are often happier. Working often provides a sense of purpose and accomplishment and can keep your mind sharp. A 2012 report from the American Psychological Association’s Center for Organizational Excellence found that workers older than 55 had higher job satisfaction than any other age group. So if you enjoy what you do for a living you may want to consider staying on the job a bit longer. The financial and emotional benefits could be well worth your time!
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