Delaying retirement might not improve your financial prospects

Michelle Singletary
Columnist July 6, 2011

I’ve been looking forward to retirement since I worked for that first manager who got on my nerves decades ago.

But lately I’ve been wondering whether all of us have done ourselves an injustice by dreaming of idyllic retirements that require much more money than we could possibly ever save or invest. Is the financial pressure too great?

Michelle Singletary writes the nationally syndicated personal finance column, “The Color of Money.” View Archive

Maybe we shouldn’t be aiming so hard to retire in our mid-60s (or even earlier). Maybe we should embrace the fact many of us will have to work well into our 70s.

This year, the first group of baby boomers will turn 65. How many of them will feel they are a financial failure if they can’t retire comfortably by this age?

A survey by First Command Financial Services found that almost half of respondents said they plan to work into their 70s. Those participating were ages 25 to 70, with annual household incomes of at least $50,000.

Seventy-six percent who haven’t retired yet said they are likely to consider working at least part time when they do retire. Many said they planned to work longer because they need the income. Some who said they have sufficient savings wanted to keep working so they could delay pulling from their retirement nest egg for an idle period that could last 30 years or more.

So there you have it. If you want to be secure for retirement and your savings are nonexistent or going slow, just work longer into your senior years, right?

Not necessarily so, says the nonpartisan Employee Benefit Research Institute (EBRI). Many baby boomers who delay their retirement past age 65 still won’t have enough income to cover their basic retirement expenses and uninsured health-care costs.

Recent research by EBRI found that even if workers delay retirement into their 80s, there is still a chance they will not have enough money in retirement.

In 2003, EBRI created a retirement security projection model to assess people’s retirement income prospects. The 2011 version added a new feature, which allows households to see whether delaying retirement past 65 could help meet their income needs. The model found that 84 is the age at which 90 percent of low-income households would have a 50 percent probability of having enough retirement income.

“In previous studies we have found that certain groups, those with the lowest incomes and close to retirement, couldn’t possibly save enough for retirement,” said Jack VanDerhei, EBRI’s research director and co-author of the research study. “So then one might conclude, no big problem, just work a couple more years. But there’s no guarantee you are going to be healthy enough to do it. Secondly, in this economy, there’s no guarantee there is going to be a demand for your skills.”

Here’s how EBRI answered the question of how working beyond age 65 actually improves retirement income for various groups of people (the dollar figures are averages over the individual’s entire career, but in 2011 dollars):

l For those in the lowest income group earning zero to $11,700, only 29.6 percent of those who retire at 65 would have sufficient financial resources to avoid running short on money for basic expenses and uninsured medical costs 50 percent of the time. However, this increases to 46.5 percent if retirement is deferred until age 69.

lFor people earning $11,701 to $31,200, the odds go up for having enough money the longer they work. Less than one-fourth would have a 70 percent probability of adequate income if they retired at age 65. This increases to 36.5 percent if they keep working to age 69.

l For those households in the next-to-highest income group earning $32,201 to $72,000, almost half would have a 70 percent probability of adequate income if they retired at age 65. This increases to 60.5 percent of households if they work to age 69.

lThree-quarters of households earning $72,001 and higher would have a 70 percent chance of having adequate income if they retired at age 65. This increases to 81.1 percent if they keep working to age 69.

What’s the takeaway from these surveys?

If working well into your golden years is your Plan B, think again.

That’s a lot of hoping and rolling the dice. You’re relying too heavily that you will still be employable.

These surveys should make you paranoid, VanDerhei says, and I agree.

So folks (old and young), it always comes back to the same tired, but always prudent, advice. Save as soon as you can and as much as you can if you want to retire with enough resources to meet your basic needs and then some.

Readers can write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071. Her e-mail address is singletarym@washpost.com. Questions are welcomed, but because of the volume of mail, personal responses may not be possible.

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