How much longer do you need to delay retirement?

(MoneyWatch) Working longer is now the "go to" strategy for affording retirement, as cited by many Americans in recent surveys. But it begs an important question: How much longer do you need to work?

One answer comes from a recent thought-provoking bulletin by Boston College's Center for Retirement Research (CRR). The bulletin describes the National Retirement Risk Index (NRRI), a measure of Americans' ability to retire at different ages. The index considers retirement savings, pension benefits, and home equity, as reported in the Federal Reserve Survey of Consumer Finances, and the amount of Social Security benefits someone might expect to receive at each possible future retirement age.

The NRRI then calculates when a person can retire and still maintain the same standard of living they enjoyed before retirement. That calculation factors in that their income and payroll taxes decrease, they're no longer saving for retirement, and that they've often paid off their mortgage.

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For households headed by someone age 62, the NRRI indicates that less than one-third of people -- only 30 percent -- have sufficient financial resources to retire and maintain their standard of living. Of these households, 60 percent are covered by a traditional defined benefit pension plan.

For households headed by someone age 65, 49 percent of today's working households will have sufficient assets to retire and maintain their standard of living in retirement. The percentage of people who can afford to retire increases to 86 percent if they wait until age 70 to retire, leading the CRR to conclude that the vast majority of households will be ready to retire by age 70.

So according to the NRRI, you won't have to work forever -- just five more years after age 65. And this is consistent with my own analysis in a previous post, A retirement plan for the working 99 percent.

Before you decide you can afford to retire at age 70, though, you'll want to understand the assumptions that the CRR makes to develop its retirement index to see if the above conclusion might apply to you.

First, in assessing if people can afford to retire at age 70, the CRR assumes that you'll start your Social Security benefits at 70, the age that generates the highest amount of benefits. In reality, three-quarters of Americans start Social Security at age 62, the earliest possible age with the lowest amount of benefits. The NRRI also takes into account the prevalence of traditional defined benefit income. If you have a significant pension from such a plan, that's great, but if you don't, it's a strike against you.

Third, the NRRI assumes you'll buy an immediate, inflation-adjusted lifetime annuity with your retirement savings -- a strategy I agree with. Most Americans, however, don't buy such an annuity; instead, they use various methods of drawing down their retirement savings that produce different amounts of retirement income, with people who draw higher amounts running the risk of outliving their assets.

On the other hand, people who withdraw at a cautious rate to avoid outliving their assets need to draw out a retirement income that's generally lower than the income that's possible from an inflation-adjusted annuity if they want to make their money last.

Finally, the NRRI assumes you'll use your home equity to generate retirement income through a reverse mortgage. But most people don't use reverse mortgages, and many hold their home equity in reserve in case they need to pay for long-term care or to leave a legacy to their children.

So the CRR assumes that the vast majority of households could retire at age 70 in theory, assuming they'll make thoughtful and effective decisions regarding their financial resources.

This begs another question: Will you take the time and effort to make the best retirement planning decisions? If you don't, you'll need to adopt the unfortunate strategy that most retirees use to make ends meet -- accepting a lower standard of living in retirement.

The best advice I can offer is this: Don't blindly rely on the conclusions from this excellent study or any other report that you read in the media. Do your own calculations when deciding how and when you can afford to retire.

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Retirement Game-Changers: Strategies for a Healthy, Financially Secure and Fulfilling Long Life and Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck.