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.
More from Kiplinger's Personal Finance magazine:
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There should be a limit on the age that someone can work, most older people that keep working don't have too, they are greedy and they stand in the way of a younger person of getting their jobs,
most will work and pitch over dead , never having any kind of life but working.
greed is a terriable thing, that often makes men slaves to work.
Come up with some realistic numbers. Most of us will never see pay like that. After thirty five years of working, I am now looking at jobs where the pay is what I made THIRTY YEARS AGO.
These numbers are pipe dreams for the average American. But then, this column may be for those much more fortunate. These numbers are not middle-America.
I'm 57 and you are all a bunch of pussies. Most of the big money is made by older guys.
Give up you pussies. Job security is being the best at what you do. Sniveling idiots.
if you are a pick and shovel guy then that's what you are. If you are a wealthy older guy (or gal) who is
employing younger up and comers. Then it is what is is. Bill Gates would slap you with a floppy disk
because you haven't progressed beyond the hard drive, wireless, or smart phone age.....
I had a good job but was surrounded by oldsters, including myself. We hired this young 22 year old.
He wanted very much to be boss and soon we (oldsters) were leaving the dept. My job ended because of lack of State funding -- but also rumors. Now, the dept is empty of older workers and only has twentysomethings working. Its' not work ****; but there it is. Now, I have medical problems along with three other co-workers-- what the heck, I would have problems working now. I am 60 yrs. old
I've worked almost full-time for 55 years since age 15 and am still employed two days a week at 70. I have a master's degree. I had a slightly better income than many, but never more than $50,000.00 a year at any time. Why did I not make more money and do not have the same retirement savings that many of my contemporaries have? Because I worked in the public sector. Plain and simple. I could have easily made considerably more money by going to work for the local airplane manufacturer straight out of high school and had better benefits all around rather than working for the public sector. Unfortunately, I was foolish enough to believe President Kennedy's message on ask what you can do for your country. Do I regret my decision? No. Would I encourage anyone else to do the same. Never. Not only do public sector employees get constant complaints from those who believe we are their slaves, not just public servants, but they also get the economic shaft. The latter is a fact learned over half a century by comparing pay stubs, hours and requirements with Boeing company friends and family members. My real question here is: Who makes up the ridiculous figures suggesting most people are ever going to have the amounts mentioned in the article? The same people who suggest borrowing money from the parents in order to start a business? Get real and give useful economic advice instead of this nonsense.
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Get your emergency fund together now if you want to avoid stumbling over costly surprises in the future.
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