The (Sad) New Retirement Strategy: Delaying The Date
RETIREMENT: DELAYING THE DATE
Many people have dreamed of leaving the workplace and living a life where they keep their own schedule and fill their days with pleasurable pursuits. They dream of retirement. But events of the past two decades have challenged those notions and forced the vast majority of older workers to re-evaluate plans for their golden years.
RETIRE AT 65. WHERE DID THAT COME FROM?
Ask anyone about "the normal retirement age" and they will almost always come up with the number 65. That number has been enshrined in our social security laws and in the policy manuals of public and private enterprises. Mandatory retirement at 65 was the rule in many companies through the 60s, 70s and 80s. But where did that number come from?
It probably was derived from life expectancy statistics of the 1930s and 40s. If you review the actuary charts from those years you'll find that life expectancy in 1930 was 64.2 years. When social security was created it assumed that people would only be collecting their benefits for a very few years and so the numbers worked out. Then something very wonderful happened: people began living longer. Today the charts show that you will probably live well into your 80s.
WILL YOU HAVE ENOUGH RESOURCES TO LIVE 15 YEARS IN RETIREMENT?
The good news is that we're living longer and our quality of life is much better than in years past. Balance that, however, with the need to meet basic living expenses for over 15 years after you've left behind a steady paycheck. Social security will provide some of that income, but many people reach their early 60s with the realization that SSI won't be enough and that they are falling short of saving enough to fund the difference. The downturn in the economy and decline in many household incomes mean that putting aside extra savings is difficult and a stagnant stock market over the past 10 years has prevented meaningful growth in 401(k) and IRA accounts.
THE NEW STRATEGY: DELAY RETIREMENT
The sad reality of our new economy is that workers may need to consider delaying retirement. Full retirement age (for social security purposes) is moving upward and most baby boomers cannot claim full benefits until age 66 or later. Many will have no alternative but to continue working into their late 60s. Staying in your current job for a few more years has three great advantages:
1. Obviously, the longer you wait to retire, the fewer years your retirement funds need to last and the more time you have to accumulate extra retirement savings.
2. Having an earned monthly income could delay your required minimum distributions on IRA accounts until 70 1/2 and that allows the earnings to grow tax-deferred for a longer time.
3. Wait four more years before claiming social security and your monthly benefit check, at age 70, will be around 8% higher than at normal retirement age. That could mean an income boost of several thousand dollars per year.
EASIER SAID THAN DONE
There are some problems with the "delay" strategy. The first is your job situation. If you are able to remain in your current position, then delaying can be beneficial. But if you are now jobless or will be facing a layoff, you'll need to be mindful of the difficulties of competing in the new economy. Keep your digital skills (computer, communications, etc.) sharp and don't lose your marketplace contacts. Stay current on the issues affecting your profession. Click here for tips on job searches for seniors.
The other concern is one that is more difficult to address and that is your health. By age 65 some people are facing medical issues that may prevent them from working. For this, there is no easy answer. I talk with many people who claim that they have no retirement plans other than to work their entire lives. Health issues can take away that option.
If you are some years away from retiring, it is best to try to accumulate enough resources so that you can supplement your social security and be able to pay your basic bills. Depending on the "delay" strategy has many shortcomings that may or may not be in your control.
For other issues on this subject, see Boomers Working Past Retirement.
Image Credit: Danilo Rizzuti
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