9/12/2012 9:43 PM ET|
Don't count on working longer
Workers may think delaying retirement is a solution to inadequate savings, but they may find themselves out of the workforce sooner than they'd planned.
Delaying retirement can be a powerful pick-me-up for a flagging 401k. But banking on additional working years to revive retirement savings is also risky business.
If you pay any attention to retirement planning, the "work longer" mantra probably sounds familiar. It's a common refrain among financial planners, mutual fund companies and personal finance publications. And that chorus has grown louder since the financial crisis devastated many workers' 401k's.
The rationale is simple: By working longer, you get more years of tax-deferred growth in your retirement accounts, and those assets must sustain you for fewer years in retirement. What's more, those who stay on the job can maximize their Social Security checks by waiting until age 70 to claim benefits.
More than one out of four workers now plan to retire at age 70 or later, according to the Employee Benefit Research Institute. That's up from 16% in the pre-crisis days of 2007. Just 8% of workers expect to retire before age 60, down from 17% in 2007.
But there's a jarring disconnect between workers' expectations and retirement reality. Fully half of the retirees surveyed by the EBRI this year said they left the workforce earlier than planned, and just 8% of them said that positive factors -- such as the ability to afford early retirement -- prompted the move. For the vast majority of early retirees, negative circumstances, such as company downsizing, played a role.
Clearly, workers relying on delayed retirement are rolling the dice. Yet, says Jack VanDerhei, a research director at the EBRI, "most people discount the future so much that they're willing to take that gamble."
The people most likely to plan on working longer to boost their retirement security may actually have the least ability to postpone their retirement. People in poor health are more likely than those in good health to have pushed back their expected retirement date in recent years, according to consulting firm Towers Watson. Yet health problems or disabilities were cited by more than half of retirees forced to retire earlier than planned, the EBRI found.
Today's tough job market compounds the uncertainty of postponing retirement. Last year, the median length of unemployment for people 55 and older was 35 weeks, up from 10 weeks before the recession, according to a recent report by the Government Accountability Office.
A sure thing
As behavioral finance experts are quick to point out, we all have an inner procrastinator who loves to put off till tomorrow what we should do today -- in this case, boost our retirement savings. But saving more today is a sure thing, and extra years in the workforce are anything but. "If you know you're not on track, you should start saving more today, because that's by far the less risky alternative," VanDerhei says.
Don't assume it's too late for saving. Older workers who maximize their savings can make up significant ground. Financial services firms don't always stress this point. T. Rowe Price has lately promoted the concept of "practice retirement," encouraging older clients to continue working but scale back retirement account contributions and free up time and money to test-drive retirement.
But T. Rowe Price also acknowledges that savers can make up lost ground quickly. It provides an example of a 55-year-old pre-retiree with no retirement savings. If the 55-year-old earns $80,000, makes the maximum $22,500 annual 401k contribution (including a $5,500 catch-up contribution for those 50 and older), gets a 3% employer match and a 3% annual raise, and earns a 6% return, his balance could top $400,000 by age 65. If he's forced to retire at that point, he's still in better shape than most Americans. And if he can continue working, he should count himself among the truly fortunate.
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Or win the lottery.....i bought a lottery subscription (for only 1 number) so i don't have to go to the store twice every week. I figure I can afford $52 a year to lose since I'm more likely to get hit by lightning.
Ok, so now my voting is dependent on how we spell things.
But, if you change the first letter of my screen name of hannity to an "s" , you get sannity, and if you don't do anything to your name , you get crying. Now, figure that out for yourself, dufass.
Companies will retire you when they want to do so, regardless of whether you have upgraded your abilities.
One young guy said he started working in electronics while in high school and when he graduated and wanted a raise his boss said he didn't have a degree, so he went to college and got the degree and then his boss said he didin't have experience.
Global free trade & by by jobs to other countries. The last four letters of America are ican, the last four letters of Republican are ican and the four letters of Democrats are rats. Figure it out on your own. We need leaders who know business so you can have a decent job here. You will need money & health care to retire & stay alive. When it is your time to go, you go. No Guarantees on how long you live..
On track to having saved enough to retire quite comfortably at age 60 in 2015, I've been pout of work since 2009. Now what?
No wonder people are broke in retirement...poor financial conselling."
Don't be so sure about that. Vote someone in like Herman Cain (remember his 9/9/9 plan?). You'll suddenly be paying a national sales tax on that Roth when you spend it. That means you'll pay tax before you put it away in the Roth, and taxed again when you spend it, where the traditional route will pay once. You also give Congress 20 years to change the law on that tax-free treatment.
Perhaps, Ubers, you might want to give up counseling....the first rule in taxes- take the deduction NOW, while it still exists.
Yes spinbasher. Don't they realize the right-wing Republican party has been busy dismantling retirements for the last 30 years? Once they get rid of unions their plan will be complete. They've already moved on to employer provided health insurance. They intend on getting rid of that benefit asap and place it squarely on the middle class. CEO's and top-paids will always "deserve" those benefits so they will never need to leave their dreamland utopia, but for the rest of us? Well, we've dreamed too long.
I know spinbasher, where have people been for the last 30 years?
Why in the world would the author of the article promote a 55 yr. old contributing 22,500 to a 401(k) when the company only matches 6% or less. The person will get KILLED on taxes. Everything over the 6% has to go to a Roth IRA for 100% tax free withdraws.
No wonder people are broke in retirement...poor financial conselling.
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