Reality Check
Five things advisers can do to help participants 50 and older to prepare for a leaner, and likely meaner, retirement
Reported by Judy Ward
Many Americans nearing retirement have spent more money than they have earned, and saved little, Gadenne says. “At some point, we are going to have to face the music,” he says. “Instead of working less and getting more, many people will enter a phase now where it is going to be the opposite: work harder and get less. In the future, many of us will do what people did before the concept of retirement was invented in the 20th century: Work as long as you are physically able.”
Twenty-eight percent of people overall in the EBRI survey say that, in the past 12 months, they have changed the age at which they anticipate retiring. The percentage of people expecting to retire at age 66 or older has nearly tripled in 15 years, rising from 11% in 1994 to 24% in 2003 and 31% in 2009. Just 1% of people said in 1994 that they expect to never retire but, by this year, that had risen to 10%, Greenwald says. Says Andonian, “A lot of people we talk to in that [50-plus] age group intend to work until they are 70 or 75, although maybe not full-time.”
That helps with Social Security, since taking it at 70 rather than 65 makes “a dramatic difference,” says Jim O’Shaughnessy, Principal at the Northbrook, Illinois-based Sheridan Road advisory firm. According to an example on the Social Security Web site, if someone has a full retirement age of 66, and that person’s monthly benefit starting at that age is $1,000, if he or she decides to not receive benefits until age 70, the monthly benefit increases to $1,320.
Many Americans should plan to work part-time while starting to collect Social Security and holding off on drawing from their retirement savings, several sources say. “You never want to stop working and draw off your retirement assets, and then start to take Social Security,” Andonian says, because of the retirement account’s rapid depletion, and even more so because that money needs to keep growing. There are “nominal differences” in the Social Security benefit when someone retires fully versus working part time, Della Vedova says.
However, those who count on the option to continue working full time in their current job, or a comparable one at another employer, may be in for a shock. “Traditional employment is down as companies lay off people or fail.” Gadenne predicts, “Many of them will have to string several part-time jobs and/or start their own ‘Me, Inc.’ or bigger companies.”
In reality, Greenwald says, a “significant percentage” of people retire before they planned to because of health issues or downsizing. In 2009, he says, 47% of retirees in the EBRI survey revealed that they retired earlier than they expected. “Confidence is a funny thing. Some people do not think that something bad will happen,” he says. “People feel that they can control it and work longer.” Those who cannot work longer and lack adequate savings “will just have to end their lives in very compromised situations,” he says.