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:
MORE ON MSN MONEY
VIDEO ON MSN MONEY
If Obama gets 4 more years, don't count on working period. And who is throwing granny over the cliff?? All of those over 65 are going to have to become drug dealers and start hitting the street stealing stuff.
All these companies want young, fresh people to work for them because they are the future. However, when you go into places with all these young, fresh people they are too busy on their computers posting what they are doing at the moment on their Facebooks, or texting the buddies what they plan on drinking or smoking that night. If you do get a response from them they look at you and say "Do you need something?" I have left many stores, that I had intentions of dropping a coupole hundred at, because of this type of behavior. How can businesses make money with employees like this?
What average person makes 80K a year? More like $30K - $35K is reality.
People who promote working longer probably never did a hard day's work. The reality is your body is starting to wear out at that age and it becomes harder to do physical labor. It sounds good but is difficult for most.
This article is out of touch with reality. Most of us earn less than $80,000 (even with an MBA) and after living expenses can't save much. And that is just necessary living expenses. Who gets raises anymore? Try working for the greedy nasty rich that treat their workers like dirt and pay them below market rate with no raises ever. Yes I can always get another job that pays better and treats workers better but I have been trying for over 2 years and when you are over 50 years old no one wants to hire you or even give you an interview.
This is just another article that places blame on us for the Wallstreet corruption. I had my 401K's invested in mutual funds just like the financial planners insisted was the best place to put it. I took advantage of the employer matches and tried to save everything my budget would allow. Finally, I decided I was tired of watching my money go down the toilet and bought a fixed annuity with largest portion of my retirement savings. Thank God I did. At the age of 64 my unscrupulous employer decided to fire me for poor work performance. This was totally false but because I could not prove the falsehood of these allegations and the state of NC looked at my case and said "Oh look, this woman will be 65 in 2 months we won't need to pay her unemployment benefits because she will get social security. So now at age 66 I am at the end of my savings and finally after 15 months of being unemployed have found a job that is 40 hours a month. I am grateful for this job as it is more than I had. I have decided to try to become self employed and work from home. I will save my earnings under my mattress as the government has not had my back for sure. Did I mention I am a single woman who has supported herself for many years and paid all my bills and taxes on time. So much for honesty pays.
Saving in the US is extremely hard for the average worker due to two reasons:
1. We do not teach savings to our children at the earliest possible age, like when at the first birthday when cash or checks come in, set up a savings account, if possible. Or put an envelope with the childs name on it in your bank safety deposit box. That money can be designated for education (not cars or vacations, and not to be borrowed from for ANY reason). When the child gets a job (even mowing lawns or baby sitting), 10% off the top of all wages goes into the savings.....always. Teach the kid that that the savings is already gone and can not be spent. Show the kid what happens to people who do not save. My mother took my brothers and myself down to the near south side of Chicago and pointed out all the bums sleeping in the streets and in cardboard boxes as examples. It changed my outlook on life.
2. For all the garbage that comes out of Washington DC, our government encourages SPENDING not SAVING. Our competitors in the world encourage SAVINGS. Long term savings for retirement are tax exempt and if withdrawn after retirement, are tax free. Congress can't wait to get their hands on all that money people in the US are saving and they have it spent before we even pay the taxes when we retire. Japans money for R & D, building new businesses, etc comes from the huge cash that people are saving in banks who then can lend that cash back out to help create more new jobs. We in the US have to borrow our capitol investment money from the US Treasurer who borrows it from China.
If you want to know how to save, ask someone who lived through the last depression of 1929 thru 1941, while you can still find them alive. Even during the depression, they continued to save 10% or more of what they earned. Today we have government insured savings accounts that are safe. A wise man once told me to never invest more in the stock market than what you can afford to loose without crying! If you do invest in the stock market, don't buy into mutual funds, manage your own stocks and make your own decisions. Statistics show that you will make some mistakes, but in the end you will do better than the "experts". I use the advice from our stock broker as a guide on what not to buy rather than what TO buy. The stock market will rise and fall, but it is really for the long term investor. The people who buy and sell all the time will loose everything eventually, while your stock broker will retire on the fees he collected from you.
The real key is to save and not touch it until you reach your goals.
I won't volunteer to help any senior service activity, not when there are many seniors working as "hobby workers" out of boredom who could fill those positions needing volunteers.
Where I live has a large retirement community which revolves a lot around retiree activities. The city continually solicits for volunteers for those retiree events, but seldom do you see retirees volunteering to support their own. They are busy taking those part-time jobs. They probably don't have time to volunteer. The rest of their time is spent demanding more social security, medicare and other Federal Govt social welfare handouts to old people and demanding the city cater to them. We won't even start on how those old people politic the city council and mayor to not support anything that the old people are against which the younger genre might enjoy (i.e. nightlife activities). Sometime while getting old, these people claim to have become ultra-conservative and religious and tell their stories "back in my days" of how apple-pie and goody-goody they were, stories that are either exaggerated or false.
Copyright © 2013 Microsoft. All rights reserved.
Quotes are real-time for NASDAQ, NYSE and AMEX. See delay times for other exchanges.
Fundamental company data and historical chart data provided by Thomson Reuters (click for restrictions). Real-time quotes provided by BATS Exchange. Real-time index quotes and delayed quotes supplied by Interactive Data Real-Time Services. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by SIX Financial Information.
Start of summer already? Better get shopping. But give the grills and new electronics a miss for now, according to the experts at Dealnews.