Why age 70 isn't the new 65
News Analysis
(MoneyWatch) As debt ceiling rhetoric heats up and lawmakers get set to address entitlement reform, expect to hear more talk about raising the Social Security eligibility age. Yet while average life expectancy has increased in the U.S., "the rise has been very uneven since the 1970s," according to New York Times columnist and Princeton economist Paul Krugman. In other words, not all Americans qualify as "average" when it comes to living a long, full life.
People who are wealthier and better educated have seen life expectancy increase, while those in the bottom half have been less fortunate. That's why I am nervous when so many people say their retirement plan is to "work longer." The Employee Benefit Research Institute (EBRI) has used data from millions of 401(k) participants and incorporated factors like longevity, investment risk and the potential for catastrophic health care costs to determine whether working five years beyond the "normal" retirement age of 65 helps Americans reach their retirement goals. What they found was that those five extra years may not be enough for many Americans to retire comfortably.
- "Chaining" inflation gauge would hurt Social Security recipients
- Reboot your retirement
- U.S. CEOs push plan to raise full retirement age
The analysis looked at both income and age. As you might expect, projections for the lowest pre-retirement income quartile are the most sobering. This group would need to defer retirement to age 84 before 90 percent of them would have even a 50 percent probability of achieving comparable pre-retirement living standards. The results improve with income levels, but even among those in the highest income quartile, 90 percent have only a 50 percent chance of having enough to retire by 70. When broken out by age, the news isn't much better: For one-third of households in which the people were between ages 30 and 59 as of 2007, working until age 70 won't provide adequate income in retirement.
Reasons not to touch your 401K
All this aside, buried in the report is a glimmer of hope -- working longer does help. While only about half of households age 50-59 in 2007 could retire at 65, the number increases to nearly two-thirds if retirement age is increased to 70. Those extra five years have a dual effect. Not only do workers save more, they also delay dipping into their retirement funds, allowing those funds to continue growing.
In the past, I have extolled some of the non-financial benefits of working longer, namely the continued social interaction and intellectual engagement. A previous EBRI report confirmed that 92 percent of those who worked beyond the traditional retirement age of 65 do so because they want "to stay active and involved," and 86 percent say they "enjoyed working." The problem is that there are some real risks associated with relying on the "work longer" retirement plan, the most significant being: What if you lose your job?
Right now, the unemployment rate is 7.8 percent for all workers and only 5.9 percent for workers over the age of 55. But dig a little deeper and the numbers aren't quite so rosy. While older workers are holding on to their jobs in large numbers, once they lose those positions it is very difficult to land a new one.
According to a 2012 Government Accountability Office study, before the recession "less than a quarter of unemployed older workers were unemployed for longer than 27 weeks. By 2011, this number had increased to 55 percent. Moreover, by 2011 over one-third of all unemployed older workers had been unemployed for over a year."
The data confirm that counting on working longer could be a dangerous assumption for retirement. That's why it's best to use the "three-legged stool" approach to saving during your working years, spending less during retirement and working longer if you are able to do so. Consider this approach a diversified way to reach retirement that allows you to weigh the practicality of each method.
As the EBRI report notes, the trade-off of more saving today versus deferring retirement is an important step in the process, but people should avoid "simplistic 'rules of thumb' that may result in future retirees, through no fault of their own, coming up short."
One way to get started on your retirement planning is to check out EBRI's "Ballpark E$timate" calculator. It's an easy-to-use, two-page worksheet that helps you quickly identify approximately how much you need to save to fund a comfortable retirement. Without a plan you may be flying blind and relying on a "work longer" strategy that you may not be able to execute. In other words, 70 is not the new 65.
Popular on MoneyWatch
- Bernanke sends stocks, bonds skittering
- Reverse cell phone lookup service is free and simple
- Why geniuses don't have jobs
- Bernanke holds the line on Fed monetary policy
- Microsoft slashes Surface prices to lure buyers
- Have you mastered the art of listening?
- Look who doesn't deserve financial aid at NYU
- Fed says it will continue $85B in bond purchases
Truly a plan that even our lower house can find attractive.
That is a fact of life in America for the last couple decades. Everyone, who has been looking for work, knows that most large to small companies don't provide job opportunities to anyone over the age of 40!
As a result, if you are between the age of 40 to 70, you will be struggling to find a decent job. Yet, at the same time, you won't be able to collect SS benefits. It is a classic case of being too old to get hired, but being too young to collect retirement benefits.
That is living in America today. There are many countries in the World where the standard of living for the middle-aged people is much better than in capitalist America.
Where is the REAL evidence?
Did everybody die at 35 back in 1900, but then - bloop - now we're all magically living to 120 (with all the ails of life taking longer to develop as well), despite plenty of news articles that tell of people in their 80s, 70s, 60s, 50s, and even 40s snuffing it early?
Some stats are longer because we have far more people on this planet than never before and because there are working classes with access to fresh, inexpensive water and inexpensive nutritious food...
And since obesity is a cause of premature death, yet more of our population is fatter, that directly contradicts any claims we're all living longer.
The unions have a decent pension in place for these men because they know by the time they're fifty five or sixty they're bodies are completely shot!
Being forced to work until age seventy is ludicrous. If, on the other hand you have a nice professional practice as a CPA, dentist, physician or engineer you might want to work all your life but ironically, none of these men need Social Security to live on.
I agree with your thoughts about the labor trades, very rough on the body and health, and no way you can keep doing that into your 60's even.
The part I do not agree with are that CPAs, engineers, programmers, etc do not need Social Security. They do actually, my uncle an example of that, 40+ years as an engineer at GM, retired then found out Obama handed all the money over to the Union so uncle got no pension that he had paid into for 40+ years. Oh well. So he definitely needs the social security.
sometimes we make blanket statements and assumptions, based on what career someone has, for example everyone thinks Federal employees are set for life, and maybe some are, but no guarantee their pensions will be there 15 years from now. On the other hand, it is not like they worked up a sweat for the 40 or 50 years they spent as a Federal government employee, I know, I live next to one and he has never experienced "stress" in the workplace! went straight into a fed job right after a few easy years in the air force, so he has never been in a private sector job and truely is completely clueless - - thinks everyone that retires will have the same benefits and perks as he does! I am not kidding you. Totally out of touch.
Anyways, there are a lot of white collar jobs where they are no better off at retirement than the blue collars. But at least they are not dealing with major major punishment issues on the body! Just sore necks and carpal tunnel syndrome! (lol)
I think every person may have their own demons to deal with, come retirement age, unless one is incredibly wealthy.
Who designed the Trailblazer? I'd like to have a choice word or two with that person.
-A faithful GM buyer who is looking very critically at a Ford purchase.
Based on current age groups:
retire at 60 live on average to 77
retire at 62 live on average to 72
retire at 65 live on average to 67
Think you see why the government wants you to work longer?