Last Updated Jun 18, 2010 12:07 PM EDT
The advice to work longer has become the ShamWow of retirement planning. Your 401(k) balance going to come up short? Work longer. Need a Plan B now that a big chunk of your home equity has vaporized? Work longer. There seems to be no boomer retirement challenge that can't be fixed by simply planning to work longer. As I noted in a previous post, Olivia Mitchell, executive director of the Pension Research Council and one of the nation's leading retirement experts recently surmised that at the end of the day, it wasn't government or corporate intervention that would save Boomer retirements. It was--drumroll--working longer. In theory, this is flawless advice, but real-life has a way of laughing at the theoretical. What is now being bandied about as the "best" boomer retirement advice can be faulty and dangerous if not carefully understood and implemented.
Does Work Longer Really Work?
Certified Financial Planner Chris Manning pushed back on the work longer strategy in a comment to my earlier post.
--.I don't see how a viable retirement plan can be based on the premise of working longer.
There are several reasons for this. The two tops ones being it is assuming we will stay healthy long enough to work until 75. It also assumes we can stay gainfully employed that long. Those are two pretty big assumptions around which a future livelihood is based (read anyone that makes this part of their plan).
Manning is absolutely right. Banking your retirement plan on working longer can be a very faulty premise. The Employee Benefit Research Institute has a terrific data series that puts the expectations of pre-retirees up against the reality experienced by current retirees. According to EBRI, the expectation/intention to work longer doesn't seamlessly play out in real life.
Source: Hewitt Associates, EBRI data
Byron Beebe, head of the U.S. Retirement Market practice at benefits consulting firm Hewitt Associates recently identified this disconnect between expectations and reality as a potential retirement risk (as if we don't already have enough of those):
We've heard a lot of people say I'm just going to work a couple of extra years. But is that going to really work? How much are you really in control of your own retirement age?
From the looks of that chart, the answer seems to be "not much." While only 28 percent of pre-retirees today say they expect to retire before age 65, the recent evidence is that 61 percent of today's retirees in fact stopped working before 65. And while one-third of today's pre-retirees say they want to keep working until at least age 70, history shows that less than 10 percent have stayed on the job that long.
Of course, part of the disconnect between expected and actual can be explained by a voluntary decision to stop working earlier than anticipated. But there is also plenty of evidence that involuntary issues play into this as well: a layoff, illness, and taking care of an ailing family member are common reasons why people leave the workforce earlier than expected.
Best Boomer Retirement Advice or Dangerous Bunk?
So does that mean the "work longer" fix is impractical at best and deceptive, at worst? I think what's needed is a bit more context.
- Work longer does not mean you can save less today.
- Work longer is not, and never should be, a core element of any retirement plan.
Work longer is a spare tire you keep stashed in the trunk. You can pull it out, if needed, to help get you the final few miles to a comfortable retirement. But if it plays out that you find yourself among the retirees who end up stopping work earlier than expected, your retirement plans won't be completely derailed. Ideally you save today so you will be okay if you need (or want) to retire before before 65. But at the same time, you keep your skills sharp, your networking humming and your health strong so, if the need arises, you have the best shot possible of working longer.
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