I was at a dinner with friends the other day and, over dessert and coffee, the conversation turned to retirement -- specifically, changing retirement trends over the past few decades as pensions fade, life expectancies increase, and the costs of healthcare and housing continue to rise.
A recent study by Age Wave and Merrill Lynch found that more than 70 percent of pre-retired Americans over age 50 plan on continuing to hold part-time employment well into traditional retirement age, and the "why" probably won't surprise you. (Here's a hint: It has to do with money).
However, working longer isn't necessarily an effective -- or safe -- path to a comfortable retirement. Here's why simply planning to work longer shouldn't be a part of your financial strategies.
Working Longer: Part of a Comprehensive Financial Plan?
Today's workers are living longer than ever; according to the Social Security Agency, the average life expectancy for today's 65-year-old man is 84, and life expectancy for a 65-year-old women is 86. In contrast, the median American worker between the ages of 45 to 54 only reported retirement savings of $101,000.
These statistics make it easy to understand why almost three-quarters of workers plan on staying in the the workforce, at least part-time, for longer. Unfortunately, this isn't a feasible component of a comprehensive financial plan.
Why? As the old saying goes, "The best laid plans...." A 2014 study from the Employment Benefit Research Institute found that about half of all retirees surveyed left the workforce much sooner than they had planned. The survey results are clear:
- While 9 percent of workers planned on retiring before age 60, 35 percent actually retired before they turned 60
- Similarly, 18 percent of workers planned on retiring before age 65, but 32 percent actually retired before 65
- Overall, just over 5 percent of the workforce consists of workers 65 or older
While you may plan to continue working well into your late 60s, the universe may have other ideas in store. Why do so many workers end up retiring earlier than planned? For 60 percent, unforeseen health issues are the culprit.
Retirement Plan Advisors: Plan for the Worst Case Scenario
For some other reluctant retirees, the choice to retire earlier than planned was made for them. For many workers, losing a job in their 50s presents a tough dilemma: Start over and attempt to find another job (while potentially facing age discrimination) or tap into those savings accounts and retire early.
Early retirement means making those savings last. Given that the average retiree lives for about 20 years after retiring, racks up more than $200,000 in health care costs, and will at some point need long-term care, that's not an easy feat without adequate funds.
Given that "I'll just work longer" isn't a feasible retirement plan -- at least not on its own -- what's the solution?
First, sit down with a trusted retirement plan fiduciary and get your retirement planning on track. With help from your wealth advisor, you can create a realistic budget, cut down on your expenses, and start building that nest egg so you don't have to rely on working longer.