Do you dread getting older? There is no need to. Getting old is not all creaky joints and hearing aids. Above and beyond the joys of travel and sleeping in, there are many benefits awaiting those who cross the bridge of the great 6-0.
I mentioned in an earlier post that our life expectancy is increasing with every passing year. Not only are we living longer, but the quality of life for those golden years is improving too, thanks to advances in healthcare and interest in eating healthy foods and exercising. But living longer has direct financial consequences which can, for the most part, be broken down into two general categories — income and expenses.
How your income is impacted over 60
When people think about living beyond 60, they mostly associate that thought with being retired. Living longer, healthier lives may sound nice, but this change has had an interesting impact on retirement that many don't key in on. To illustrate, let's use some rough numbers, starting with a base scenario of beginning your earning life at age 20 and retiring at 60.
Before: When your life expectancy was 70 years, it meant you could expect to have 40 earning years (from age 20 to 60) and your retired years would number 10 (from age 60 to 70). In turn, that means you would have had 40 years in which to store up enough to see you through the 10 years of your retirement.
I call that a “retirement ratio” of 4 to 1 (four years of work to fund one year of retirement). So back then, about 25 percent of a working year's wages (not counting interest) needed to be set aside for retirement.
Now: Life expectancy these days is closer to 80 years. And that may not seem like a big difference … until you do the math. If you still wanted to retire at 60, that means your 40 earning years from age 20 to 60 have to provide for 20 retired years.
So today, about 50 percent of a working year's wages (not counting interest) needs to be set aside for retirement. The retirement ratio halves from 4 to 1 down to 2 to 1 (two years of work has to fund one year's retirement).
That math is compelling enough to cause more people to work longer, and you can see this trend in the chart below. The labor force participation rate of those 55 and older compared to the entire population for the past 20 years has been steadily increasing since the late 1990s.
But people generally don't do something unless there is some benefit to be gained. Here are a few of the benefits which are keeping people in the work force longer:
1. You improve your “retirement ratio.” Every year you work past 60 improves your retirement ratio. The higher your retirement ratio, the smaller the burden on each working year's wages. Sticking with the life expectancy of 80 years used above, working just five years longer (from age 60 to 65) will increase your retirement ratio significantly — from 2 to 1 up to 3 to 1 (45 years worked, 15 years retired).
Given that we are in better shape and better health at 60 than our forebears, working longer isn't as much of an imposition as it might have been earlier.
2. You extend peak-earning years. You make more at the end of your career than at its beginning. Several things impact pay. For example, the length of time you worked adds up to a significant amount of experience, education, and contacts. Therefore, the longer you remain in the work force, the more time you have to develop all three. That is why your pay rate at the tail end of your career is usually higher than what you can make in retirement.
Some may counter that older people get pushed out by younger (read: cheaper) people. Anecdotally, that may be true, but the labor force participation chart above shows otherwise.
3. You increase your social security. In America, social security is the elephant in the retirement room. If you google “benefits of being over 60,” you will find that most of the results deal entirely with social security. It is actually a very complicated topic — someone told me there are more than 580 ways for a married couple to file for social security — but the simple version is that the longer you wait to claim, the more you get per year.
4. You increase your net from social security. When you earn any other income besides social security, your social security benefits get reduced. However, the longer you wait to file, the less your social security will be reduced.
There is another benefit to being over 60 that is hard to classify: You have more choice over what you want to do. I happen to like to write, but writing isn't necessarily a lucrative pursuit. Because our investments provide an earnings platform in the background, I have the luxury to spend my days doing something that I truly enjoy even though the pay may not impress anyone.
Of all the financial benefits I listed, I would put the freedom to do what you want to do at or near the top of the list, but that doesn't mean they stop there. The financial benefits of being on the right side of 60 actually extend beyond income only.
How your expenses are impacted over 60
As most of you know, a world of savings and discounts await those who bravely enter the golden years. My wife and I used to joke when we were younger that we couldn't wait to turn 55 so we could get our senior discounts at Denny's. But we didn't realize there were so many other financial benefits to being over 60. Here are a few examples:
5. National Parks Lifetime Pass. This is something we did not joke about, actually. We love to travel and, in particular, to visit the scenic wonders so plentiful in the United States. The week I turned 62, we got one of the best deals in the States: For $10, we enjoy lifetime access to all the national parks.
And that's not all. When we camp in a national park (which we like to do), we save big on the nightly fee. Granted, this is not thousands of dollars, but they are very happy dollars. :)
6. Education. The United States Department of Education's Division of Adult Education and Literacy provides seniors with training in everything from basic language and math skills to computer literacy. The classes are typically aimed at those who wish to prepare for a new career, re-enter the work force or just update their skill set. The programs are funded by the federal government and are provided free of charge to those 60 and older. If your main interest is camping, this probably doesn't affect you; but if you wanted to switch into an occupation that is less stressful or closer to home, it can be a great benefit.
7. Property tax savings. Some states offer reductions, in various forms, for property tax. These kick in at different ages, depending on the state. It is impossible to list them all here, but it may be worthwhile to check out what your state offers in the way of property tax savings.
8. Medicare. Once you are 65, you are eligible to receive Medicare. It is not free medical care, but it almost always is a significant savings over what you paid before. Some people complain about this shortcoming or that expense, and many of those criticisms may be valid. The bottom line, however, is that your costs for healthcare go down.
9. Free rides. Most urban communities have a service that will give seniors free (or low-cost) rides. All you need to do is call in advance to schedule a pick-up. (Tip: Signing up to receive these services is a great way to meet other people from your community that are more or less in your position too.)
10. Discounts. When it comes to discounts, Denny's isn't the only place to look. Most airlines give discounts for people over age 65. Just like a AAA membership often pays for itself in your younger years with travel discounts, AARP membership usually pays for itself when you are older.
The list of businesses offering discounts continually changes, but the best thing to do is to google various search terms; that gets you the latest and most up-to-date list. Be aware that many of the savings come with strings attached, though. For example, you can get a free donut every day at Dunkin Donuts, but you have to buy a cup of coffee. You will save more by simply making your own breakfast.
What is the bottom line?
Once you are past 60, your life makes a change unmatched by probably any changes you have made since puberty and setting out on your own. It's a double-edged sword, though: Those creaky joints and other health issues can put a damper on things; but there are many benefits, financial and otherwise, that can more than make up for those. When I was younger, I looked forward to these years and, for the most part, I would say I am happier now than I have ever been.
What is your retirement ratio, and what benefits are you looking forward to at age 60? If you already enjoy these benefits, what are the best of the bunch? What would you add to the list?
William Cowie spent 30 years in senior management (CFO/CEO) before retiring. He has a bachelor's, a master's, and a partial doctorate in management and strategy. Author of the book “The Four Seasons of the Economy,” William also assists medium-sized businesses in the use of the Four Season Strategy to help them capitalize on economic cycles. He runs two blogs: Bite the Bullet Investing (investing) and Drop Dead Money (the economy) and writes for several other blogs in addition.