The New Retirement Age
By Kevin Dufficy
For decades, Americans considered 65 years old to be the year of Retirement. Over the past decade or so, we have witnessed a transformation in the views towards retirement and retirement ages due partly to demographic changes in the population (notably longer life expectancies) as well as changing (and worsening) economic conditions. Since 1998, The Transamerica Center for Retirement Studies - a non-profit, private foundation that conducts research and provides education concerning retirement trends, issues and opportunities - has conducted an Annual Retirement Survey. The center's 12th Annual Transamerica Retirement Survey polled 743 employers, 4,080 workers and 668 unemployed workers. Of the respondents, 40% plan to work longer and retire at an older age because of the economy, and 39% plan to retire after age 70 or not at all. More than half expect to work during retirement.
In addition to providing for oneself and one's spouse during retirement, many pre-retirees are delaying their golden years to deal with new child care expenses like the financial support of adult children. According to a May 2011 online poll commissioned by the National Endowment for Financial Education (NEFE), 59% of parents are providing financial assistance - in the form of housing, living expenses, transportation, insurance, medical bills and spending money - to their adult children who are no longer in school. Longer life expectancies, botched investments, increasing medical costs, the expense of supporting adult children and concerns about the economy are contributing to a higher retirement age.
Seventy: the New Retirement Age?
Individuals can start collecting Social Security retirement benefits as early as 62. If they do that however, the monthly benefit amount is reduced by about 30%. Each year that Social Security benefits are delayed, the percentage of reduction decreases, until age 67 which is considered the normal retirement age (NRA) for people born after 1954. In other words, the longer one waits to start collecting Social Security benefits, the larger the monthly check. If you wait until age 70, benefits earn extra credit - nearly a third more.
For example, a person who waits to collect benefits at the normal retirement age may receive $1,000 each month in benefits. Had that person starting collecting at age 62, the monthly benefit would be reduced to $750. If they wait until age 70, they might receive $1,320 each month. Generally, those who are still working and/or making enough to make ends meet, who are in good health and expect to exceed the average life expectancy, and who are the higher-earning spouse are advised to wait until age 67 or more to collect benefits. There have been proposals to raise the Social Security retirement age to 70 by the year 2040, but no decisions have yet been made.
Social Security benefits - and when to collect them - are not the only driving force behind delaying your retirement age. We know that life expectancies have increase dramatically over the past 50 years (14 years longer for the average woman for example), and the idea of "doing nothing" is an unsavory prospect for some who would rather work than have too many retirement years to fill. According to the 12th Annual Transamerica Retirement Survey, 44% of those who plan on working after retirement or age 65, will do so out of necessity. The remaining 56% will delay retirement for reasons such as stimulation and satisfaction, rather than financial need. Since people are living longer, concerns about running out of money - because of medical costs, the financial support of adult children or simple living expenses - can also influence the decision to work and save for more years.
We all know, sometimes from experience other times from witnessing people around us, that life's uncertainties can derail even the best laid retirement plans. Unexpected events happen that can force people into retirement before or after they had planned. Health problems and job loss can result in earlier-than-planned retirement. Worthless 401(k)s and unplanned-for expenses can force people to work longer. As we cannot predict these unexpected events, planning to never retire is not a practical retirement strategy. The fact is something may happen to prevent this. People still need to be proactive about making retirement plans that include a backup plan if retirement is forced sooner than expected. Retirement planning involves analysis of multiple factors, detailed number crunching and making difficult forecasts: figuring out how much money one will need to retire, how long one expects to live, weighing the pros and cons of taking Social Security benefits earlier or later and even estimating how much financial assistance children and siblings will need. A large number of helpful resources can be found online (including this site). Community colleges often offer free retirement seminars and qualified financial advisors can be helpful. Regardless of how one goes about making a retirement plan, the important thing is that a realistic plan is made. Planning to never retire doesn't count.
Working longer may involve learning new skills to remain relevant in the workplace. Perhaps the most intimidating of those to the generation entering their normal retirement years is the computer. While the grandkids may be adept at surfing the internet and making bar charts in Excel, the older generations may have yet to learn these essential skills. Technology skills and communication tools (texting, social media, etc.) help mature workers stay savvy and contemporary. If staying in an existing job or career isn't an option, transitioning to a new career field can provide the opportunity to learn a new skill set, meet new people and enjoy a longer, more fulfilling work life.
The Bottom Line
People are working longer for a variety of reasons including financial need and personal satisfaction. Planning to never retire does not make a retirement plan. Regardless of circumstances, people still need to do the difficult number crunching and scenario analysis to come up with a viable plan. Staying relevant in the workplace through continuing education and other job skills training can alleviate some of the challenges faced when working to the new retirement age and beyond.
About Kevin Dufficy
Kevin Dufficy is a seasoned financial expert having written articles and blogs on a wide range of financial, investment and retirement planning topics. He has an MBA from UC Berkeley, and a degree from H.E.C., the leading French business school in Paris, France. To follow Kevin"s profile, click here.