Monday, August 20, 2012

The Secret to Retirement - Working Longer, or maybe not?

In the Retirement Plan industry there is a lot of discussion surrounding retirement income adequacy.  Everyone's trying to work out at what age we can all retire at and what if there's a savings shortfall (there is one in the aggregate!!!) for an individual person.  How do we adjust for it, etc.  The answer that lies in most of these retirement readiness planning services is to reduce that person's liability.  Plainly, this means to shorten the amount of time that a person needs to finance. 

So how do we shorten that time at the end of our lives that we need to finance? 

One very morbid way would be to die younger....but let's say that this won't be a voluntary option for most of us.  Living longer seems to be the goal for most of us and the actuarial life expectancy tables all confirm that we, in the U.S., are in fact living longer.  At present, the average American (male or female) will live well into their 80's or 90's.  Most retirement calculators are static in the retirement age at around 65 or 66. 

The other way would be to retire later.  Aha!  This is the answer to the question.  I didn't save enough when I was young so I can't afford to retire at 65, let's find a point in time where I can afford it if I save like crazy from now on.  This delaying of retirement can be powerful in helping the math work out.  However, there are assumptions being made here, namely that an employer will actually KEEP you in your mid-late 60's, when they can hire someone younger, cheaper and with perhaps more and better skills. 

Recently, I read this article in Kiplinger's, Rethinking Retirement by Eleanor Laise where she addresses this problem specifically.

What if 'Working Longer' isn't an option?  She references a recent Employee Benefit Research Institute (EBRI) study where more than 1 out of 4 workers now plan to retire when they reach 70, up from 16% from five years ago.  Unfortunately, this plan to work longer may not work out.  In the same survey, of the retirees surveyed, 50% of them stated that they retired younger than they expected and 92% of those cited a negative circumstance for the reason why.  I.E. it may not be a choice for us to work longer.  Some examples of negative circumstances are company downsizing or poor health/disability. 

So, here's the's the same one that we always say and this just illustrates it yet again.  The only sure thing to fight against our own elderly poverty is to save.  Very simple, just save and make the lifestyle adjustment necessary to accommodate a policy of savings.  Thank you Eleanor for a good article highlighting a true societal problem.

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