Want More Money in Retirement? Work a Little Longer!
Looking for an effective way to improve the chances that you won’t run out of money in retirement? It’s easy: Just delay retirement.
That may not be the solution you wanted to hear. But by working just a few years more, you can greatly enhance your portfolio’s longevity, as well as have a higher Social Security benefit to rely on in the event that your money runs out. To illustrate these benefits, consider a 62-year-old who has saved $250,000 for retirement. In the past year, she earned $75,000 at her job, and contributed 15% of her salary, or $11,250, to her 401(k). She figures she could live on 75% of her pre-retirement income.
How long would her money last if she retired today as compared to later ages? We fired up the “Am I saving enough? What can I change?” calculator (found among the retirement calculators at The Motley Fool) to analyze her situation. Here are the results.
| Retirement Age | 62 | 64 | 66 | 68 | 70 |
|---|---|---|---|---|---|
| Number of Years Portfolio Will Last | 5.2 | 6.3 | 7.8 | 9.8 | 12.8 |
| Portfolio Will Last Until Age… | 67.2 | 70.3 | 73.8 | 77.8 | 82.8 |
| % of Expenses Covered by Social Security | 34.2% | 39.5% | 45.5% | 52.8% | 59.9% |
With all those pretty numbers in mind, let’s discuss the benefits of working a few years longer.
Your portfolio will have more years to grow
Our hypothetical retiree’s portfolio will last an estimated 5.2 years if she retires today, but its longevity increases with every year she puts off retirement, thanks to a combination of additional contributions and delaying the point at which assets are sold to pay for retirement. In fact, her $250,000 could almost double to $483,087 by age 70, assuming a 5% investment return and continued annual contributions of $11,250.
You’ll get a larger Social Security benefit
A bigger portfolio isn’t the only reason our retiree’s prospects improve the longer she works. Her portfolio will also last longer because of bigger Social Security checks, which means she’ll need to withdraw less from her portfolio to cover expenses. According to the benefits calculator on the Social Security website, our retiree will receive $16,032 in her first year of retirement if she applies for benefits at age 62. However, the calculator estimates that her benefit would more than double to $36,096 if she can wait until age 70.
That increased benefit is due to two factors. First, for every year you delay taking Social Security, the benefit increases approximately 8% plus inflation. Secondly, the benefit is calculated using the 35 years in which you earned the most money (adjusted for average wage inflation); if you are earning a high income in your 60s relative to what you earned previously in your career, then the more years you work, the more the higher-income years replace the lower-income years in the benefits calculation, resulting in a bigger monthly check.
Finally, delaying Social Security benefits also provides a larger safety net in case your portfolio does get fully depleted. If our retiree stopped working at age 62 and later ran out of money, Social Security would cover just 34.2% of her expenses. However, had she waited until age 70 and her portfolio went kaput, Social Security would cover 59.9% of her bills. Not ideal, of course, but better than 34.2%.
Your portfolio’s potential expiration will be closer to your own
The length of your retirement is the number of years between the day you quit work and the day life quits you. The older you are when you retire, the fewer number of years your money needs to last.
Of course, you don’t know exactly when you’ll exceed life’s mortal debt ceiling, but according to the Social Security Administration, the average 62-year-old male will live another 19.4 years and the average 62-year-old female will live another 22.3 years (apparently, pulling fingers reduces longevity). As you can see from the above table, if our retiree quits work at age 62, the calculator estimates she’ll run out of money at age 67. If she retires at age 70, her money is estimated to last into her 80s. This is still not ideal; most financial advisors recommend that retirees plan to reach age 90 to 95. But retiring later does result in her portfolio running out at an age closer to the average life expectancy.
The Bottom Line
There several ways to improve the chances that you won’t run out of money in retirement, such as save more while you’re working, earn higher investment returns (though never guaranteed, of course), downsize your home, reduce your expenses (as exemplified by Akaisha and Billy Kaderli, whom I interviewed a few weeks ago), or marry Warren Buffett.
Delaying retirement is not the only option, but it’s likely the most impactful option for those approaching their 60s with insufficient savings. It can also benefit those who have already retired but are willing and able to return to work, even part-time. (If it’s been less than 12 months since you received your first Social Security check, you can withdraw your application for benefits, return any money you received, and then take a larger benefit later.) Whatever you do, run your own numbers to determine what will best improve your retirement security. Many people retire too early, only to figure that out too late.
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There are 83 comments to "Want More Money in Retirement? Work a Little Longer!".
…or you could spend your life socking money away into dividend paying companies.
Here are 3 cheap, high yielding oil companies:
http://seekingalpha.com/article/292891-3-cheap-high-yield-global-oil-companies-worth-considering-now
Mark, that sounds like a good idea. I don’t know much about dividend stocks, so I’d like to ask something if you don’t mind.
How many times my salary do I need to own in order to get my salary’s worth of dividends? Not a single stock, but on average, on this market, what is the percent that stocks pay in dividends, when they do?
Thanks in advance.
SDY is an exchange-traded fund that we used to own, which tracks the S&P High Yield Dividend Aristocrats Index (companies that have increased dividends every year for 25 years or more). Its last dividend was 3.43% – so if you wanted to subsist only on dividends of this ETF, you would divide your salary by 0.0343 and that would tell you how much you’d need to own (so if you wanted $50K a year in dividend income, you’d need about $1.46M invested).
Any individual company can cut or suspend dividends. I think you need to diversify if you’re going to base your retirement on dividends alone. But the math works out the same in any case.
Thanks! That helps me understand. It’s like a savings account that doesn’t lose to inflation when you skim the interest off the top (provided of course the stocks don’t tank).
How do you get to that million and a half from 50K per year though. !! Reinvesting the dividends would be a slow growth, wouldn’t it? Maybe I’d convert to dividend stocks at the time of retirement, but I don’t see how this is a good investment unless I’m missing something, yes? Wouldn’t it be better to focus on growth stocks first? Index stocks maybe?
Thanks. I know nothing about this so any information is appreciated.
Well, I think the point of a dividend retirement is that the underlying value of the stocks doesn’t matter so much because your goal is to not sell the shares at all in your lifetime (I guess you’d pass them on to your heirs). The only thing that matters is the dividend yield, and how many shares you own. So it doesn’t matter if you save $1.5M in cash and buy a bunch of shares when you retire, or you save in the ETF all along (and reinvest the dividends until you need the cash flow), or trade from a growth index fund into a high-dividend fund, etc. It’s kind of a different take on an annuity I guess.
Don’t just look for a good dividend stock, some companies will actually go into the red to continue paying a dividend and the financial outlook of the entire company could be very poor.
When your looking for a solid dividend stock don’t just look at the P/E ratio make sure you look at there future growth/expansion potential and there current earnings, get a holistic view of how the company is going and were they see them selves going into the future.
Basically you want a solid performing company that has a future direction plan with slow to reasonable growth/expansion into the future.
Good Luck 🙂
Good points! I think right now we’re still stuck in an outdated idea of what our careers should look like — basically working non-stop until we retire and call it quits.
We’re already seeing people re-thinking this idea by working longer because they want to, starting new businesses, consulting, etc. I interviewed one academic and she told me about research going on in Europe (not published yet, sorry) looking at how people’s career paths, not just their retirement, is changing.
For instance, in the future more people might take a year or two off while they’re younger to pursue goals like travel, higher education and spending time with family. They’ll work to an older age, but the number of years they work would be the same as someone who retired younger but took no breaks. Perhaps during the year’s off contributions to retirement savings aren’t being made, but overall I think the portfolio still has the advantage of time and compounding.
I’m really curious to see the outcome of this research. As a women who hasn’t yet had kids, the idea of taking time throughout one’s career and working a little longer appeals to me.
I’m with you; I would rather work a little longer (even though I save a lot now) and be able to travel and do things while I know I can. You never know what will happen down the road with family and physical issues and things.
I would like to work part-time when I’m “retired”, but I don’t think expecting to work part-time should take the place of saving adequately. Many older Americans who want to work can’t work – because of health issues, age discrimination, or geographical constraints.
Kind of silly to reply to my own comment, but here is a report on the economic squeeze older folks are in. http://www.thescanfoundation.org/research-policy-library/older-americans-facing-economic-squeeze-trying-work-save-or-retire-during-ha
I’ve already done that, but not entirely by choice. I had several years of underemployment in the eighties and nineties; enjoyed the time with my husband, who was already retired. I finally found an excellent 3/4 time job in an interesting field and stayed there for 10 years, ‘retiring’ at 55. Although I am technically FI, I am not drawing on my funds until they are needed.
I totally agree that careers will look nothing like they do today in 30 years. My husband and I are 30ish, most people we know don’t stay at any company longer than 3 years. Heck, most are still trying to “find themselves” into their early 40s. We have to come up with a different paradigm.
I simply don’t feel comfortable relying on the stock market, a salary, or social security taking care of me. It seems dismal to work 9-5 for 40 years to scrimp and save one million dollars for a 5% return.
I work for a state agency with a defined pension plan. Many people that I know have retired with full benefits, yet got hired back on as a full or part-time employee. They continue to defer their defined pension plan, as well as receive an additional salary and plug money away into other retirement vehicles.
Working longer may not be the best medicine to swallow, but it sure makes financial sense.
Another benefit to retiring later is that you are hopefully still physically capable of working and achieving a relatively high salary. If you retire early and run out of money, your job as a Walmart greeter at 95 isn’t going to do much for your bottom line.
“hopefully still physically capable of working.”
OK, I’m going to beat my dead horse here. Extending retirement (and extending Medicare eligibility age)is great if you have an office job. Not so great if you killed your knees as a housecleaner, or simply wore out or had one too many injuries doing construction.
Blue-collar work is very hard on the body. And it’s fine to say that these people should have trained for better jobs…but we can’t all be lawyers. Somebody has to change briefs on the elderly or build roads.
Turns out office jobs aren’t so great for your knees either . . . .
http://www.marksdailyapple.com/sitting-unhealthy/
You don’t have to have a body-killing job to not be able to work into older age – illness gets more common as you get older, so does mental impairment from early strokes and early dementia. Some of those old lawyers are technically “working” but napping at their desks in the afternoon – ask their secretaries and junior associates.
It’s not smart to plan on working later to make up for not saving now. You just can’t know what will happen with your health.
My wife’s an attorney and she retires next year. Her goal is to be hired by Walmart to be a Walmart Greeter. I’ve already given her Walmart Greeter business cards. She’s gettin’ excited.
Robert I guess people already started doing it. I see in our local grocer Publix, it’s either students or people retired from other jobs staffing the billing counters. I would like to point towards some impact of us working post retirement age.
Unless we create new jobs, any one working late is actually taking a job away from a young worker.
When you work late you are potentially risking your body and mind. Day job at times is very stressful.
Depending on your employer policy, in order to continue working after certain age, you need to take retirement and get a new job elsewhere. (I know one of the publix workers who was actually a Citibank employee in his pre retirement). It often means getting a job you are over qualified for. It might not be that fulfilling.
Over all, I would lean towards downsizing rather than continuing on a job, if we find us short of money post retirement, hopefully that will not be the case any way. But if I am severely short of saving then I have no choice but to work.
In all my financial calculation, I keep retirement age as 60 and trying to maximize my saving so that I can take retirement at 60.
I’m not sure I can agree that there are a finite number of jobs. Those elderly checkers and baggers in turn have more money to spend on things than they would otherwise.
Also,there are plenty of semi-retired folks who really enjoy bagging groceries, moving carts, etc. It’s get them out of the house and gives them something to do. And in an environment that’s much lower stress than whatever “fulfilling” career they once had.
Personally, I would rather not have to work when I’m older, but I don’t think it would be the worst thing either.
Funny how no one talks about the jobs that older entrepreneurs create 😉 People see a 65-70 year working as a clerk and think “he/she is taking away a job from a younger person.” Or they see a burnt out older worker clinging to his/her job and think “he/she needs to go so we can get some fresh blood in here.”
A friend of mine works for a company that someone started after age 65. I have friends who worked for small business owners still loving their jobs in their 70s. Perhaps we have to look past age and focus on people’s skills, experience and innovation instead?
I agree that it can be helpful for the elderly to be able to have that additional socialization rather than sit at home with their pet in front of the TV, especially if they’re single and not active in the community in other ways.
Picking up on SB’s downsizing comment – depending upon where the person lives, if their housing is taken care of and if he/she supporting dependents, 56k (75% of 75k) may be quite generous. I myself would also lean towards trying to significantly reduce my costs prior to retirement, rather than work longer.
I don’t know if I could. Assuming our mortgage will be paid off, we’ll still have property taxes and upkeep to stay in our home. At that point, I would rather work than be forced to leave the home where we raised our children. Unless I were really young (early 60’s) and knew I was going to create a lot more memories, I’m pretty sure that leaving the place my husband and I have lived the majority of our life would kill me. And I know it would kill my husband who likes change even less than I do.
We’re doing quite well saving for retirement so I hope we’re not facing that scenario, but if we were…
It’s good for me to see different opinions. Because I couldn’t imagine living where I had “too much house” for sentimental reasons.
Property taxes in retirement are one of those things that vary greatly from state to state. Not only does the level of taxation vary, but so does the level of any breaks for people based on age or income.
We just moved from Connecticut (no provision for easing lower-income or retiree property taxes) to New York (provision for both of those, and also for anyone’s primary residence – kind of an inverted way to charge more taxes on second + homes). Both states have budget issues (so the NY tax breaks may not last forever), but as a retiree the property taxes are potentially much more manageable in NY.
I’m not advocating moving per se, just pointing out that where you live may make quite a difference in your retirement planning. I will say that a lower cost region was a big factor (along with business opportunities & being closer to family) that we moved.
I take exception to this idea of working later is “taking” jobs away from younger workers. You can use the same argument that people with children should be given priority since they have more mouths to feed and “single” people are taking away their jobs. Pick your pet group and you can likely make a rationale argument to show that they aren’t getting the jobs they should. The problem has less to do with whose sitting in current jobs and more to do with businesses hiring less in this current economy. Even when an older person retires, the company doesn’t automatically move someone into their old position anymore, they may contract out or try to find a less expensive solution to get that work done with the existing staff rather than hire and train someone new. It’s not a simplistic dominos/slots game.
Good points 🙂
Or perhaps dual income families should give up one job to a single person? After all, it’s possible for a family to live on one income, but not possible for a single person to live on no income 😉
See? These arguments get rather silly.
One of the arguments years ago for paying men more is that they usually had a family to support, whereas a working woman was probably single or had a husband to support her.
Also, a lot of women lost their good-paying jobs after WWII, because men returning from the war needed jobs.
We don’t need to go back to the “good” old days, where your job status or pay was determined in part with whether you needed it.
My mother is 79 and still working. The idea that she is taking a job away from a younger person seems inaccurate to say the least. Not only is she more experienced in her field than most younger workers, but she repeatedly out-performs the younger workers. She is highly employable because of her experience (related to her age) and performance.
And what field is she in…? How did she get that “experience”? By working longer! So the more she works, the less time someone younger has to GET that experience.
Although that’s a bit of a devil’s advocate as it really depends in part on her job. One of the few places that it is more of an in/out/in situation is academics and here it’s also easy for older people to keep their jobs until they die, thus reducing the amount open to others coming up.
But my grandmother worked as a Realtor until 6 months before she died and I don’t think she “took” the job from anyone else as that field is open to anyone willing to work hard.
There are many ways to get experience. My volunteer work helped me get jobs too. I was mentoring a new grad and that’s what I recommended — volunteer in the community, volunteer for a non-profit, volunteer at events and conferences. Get experience and meet people.
Often times, a lack of experience isn’t the only issue — it’s a lack of social capital. The majority of people get job leads through someone they know. That’s why career experts always say to network, network, network. (I find it one of the hardest things to do though!)
Hey, Megan:
She is in soldering. She actually went back to work after raising us, so when she did go back into it, she went back in at a lesser level than many of her younger coworkers. Then, she outperformed them. Not everyone is a dynamo, like my mom– but, this “taking a job away” stuff does not hold water for me. My mom has earned her place. And, just because someone younger might need the job does not mean she should give hers up.
And, I feel the same way about academics. Is it the fault of the professors that a school does not want to hire tenure-track, full-time professors? The ratio is not always 1:1 in that. And, what happens to the knowledge and wisdom lost by the physical loss of those elderly professors?
Last year, I think, there was a thread about whether someone taking a second job was actually taking a job from someone else. Guess what side I’m on in that? ha!
Yeah, there’s a lot to think about with this, but much like your grandmother, my mom earned spot and that should be valued.
I have a pet theory that people who continue to have meaningful work into their later years live longer. So not only do you have a few more dollars to spend, you’ll have a few more years with which to spend them.
It’s not a theory — they’re starting to prove that’s true. (There is some research out of Australia and Canada — again, their full findings haven’t been published yet.) Also, people who are their own bosses tend to work longer and live longer.
I think it really depends on people’s careers though. it’s easier for an executive to work longer than a physical labourer. (The body does wear down!) To some people, a job is just a pay check and they find meaning in their lives outside of work — it’s easier for them to leave work behind. For others, their identity is very much wrapped up their career and retiring is a very difficult transition.
I apologize I can’t link to any studies yet — the work is forthcoming.
DANG!!!!
Dreamstomper!
One wild card is deciding when to retire is the condition of your parents. By the time I hit my mid sixties, my parents will be in their 80s (and likely to be around for a while given my family’s history).
At that time, I’ll need to consider if I should be earning more money or cutting back the hours to help my folks.
That’s one more incentive to take a break while you’re young–especially if you don’t have kids. By retirement age, I may have other responsibilities.
Agreed! That’s part of the reason I’m thinking “financial independence” rather than “retirement”. I’d like to keep working as long as I can, but I’m still aiming for a certain retirement age — anything extra is gravy 🙂
I read a lot about retirement and a lot of people are forced to retire early due to their own health issues or disability, but there are a lot of people helping to pay for their parents’ care and taking time off or retiring to look after them. (Women are more likely to sacrifice their careers to care for parents than men.)
It scares me when I hear people say they’re planning on working to a certain age past 65. If you “have to” work until you’re 70, what happens if you have a heart attack or stroke in your sixties? (Or cancer, Alzheimer’s, complications of diabetes, etc.)
Anyone else finding it really hard to plan for retirement these days? 😉
Elizabeth you have the right idea! I am relatively “young” to be planning for “retirement” but I don’t wish to spend my whole life behind a desk either! My goal is financial independence too, earlier than later, so I can then have freedom to work on jobs or projects that I don’t have to rely on income from. I don’t think anyone’s idea of retirement today is sitting around playing bridge sipping camparis!
@Elizabeth – Agreed. My mother is 60, have been working as a LVN and RN for 40 years now and still will probably need to work longer due to spending half of her career working per diem though registries. Due to significant work related back injuries that started 20 years ago, she may not be able to push, push, push past retirement age.
With me, I “retired” on disability unexpectedly at 30 due to a chronic illnes,s though I am looking to start working part-time; if a part-time, flexible job exist in this economy.
Point is, do what you can *today* (working, saving, investing), but just know that anything can happen to derail your plans. Not everyone can and should work until they’re 80.
I worked longer (to nearly 69) and thus have a little more SS & retirement. Also, my husband and I took smaller retirements to leave 100% to surviving spouse. The only reason I retired was because my husband had a rare cancer and was getting to the place he needed me home more. I never regretted that year and 3/4.
What I do miss is the work. I need work to set a schedule for me. I goof off too much when left to my own devices. I absolutely hate retirement but jobs are scarce and I am financially ok. I do not want to take jobs from families who really need it. Guess I’ll need to do some volunteering. Hospice Compassus, here I come.
I had intended to work until the day I died. Shows how our plans can be kicked in the rear.
The only good part of retirement is that I can travel some in the states to see family. I am extremely grateful for all I have, but I still miss that alarm clock waking me up each week day and saying, “You don’t get to work, you don’t get paid.”
I suspect this is going to be a very real challenge in our household. My husband is 10 years older than me, and it’s something we need to figure into our retirement planning. If I wait until 70 to retire, he’ll be 80, and pushing the average life expectancy. Not only will that reduce the amount of time we can spend together in retirement, but we’ll need to take sickness, long-term care, etc. into account.
Good Article!
I am an educator and I expect to have 30 years in and start drawing retirement at 55. 55 is a young age to retire at and so I plan to take on JD’s mentality and simply make more money rather than finding ways to stretch the money I have out. Doing both is what I try to do, but my focus on making additional income.
Although Robert makes good points, I want to retire earlier rather than later.
It’s sad that our seniors are going to have to work longer to afford retirement. However, this post highlights an important arguement – start saving early! The earlier one starts to save for retirement, the more their money compounds. That may be the single most important factor that determines whether you retire at 62 or 70.
Devil’s advocate: Young people now CAN’T start saving early because they can’t find jobs that pay enough to save for retirement because senior citizens didn’t save enough! 😉
Hmm. Good point, but not entirely accurate. I doubt that many “senior citizens” are occupying the entry level jobs that most young people are after.
Saving for retirement means sacrifice, so I’m not sure whether young people not being able to save is really due to a lack of good paying jobs or a lack of ability to set financial priorities. It doesn’t take much to get started — even $25 a month.
Also, we can’t put the blame on people for “not saving enough” — It’s important to remember how many people had their investments take a hit due to the recession. They saved, only now their portfolio is worth significantly less and they have to make up for the shortfall.
Young people can start saving at any age! If young people have money to spend on fast food, cell phones and video games, they have money to save IMO. Agreed, that they would need to work to EARN money, but the distinction is SAVING not EARNING.
Interestingly enough I just read an article yesterday discussing the unsettling fact that a majority of early retiries were forced into retirement because of layoffs, medical issues or caring for loved ones. This leads to believe we may not necessarily always get to choose if we want to continue working. Speaking from my own experience I know of two older people forced into retirement through layoffs just within the past couple years. Both were planning on working a few more years. Not sure if they would be able to find some other kind of work to help them out if need be though.
My mother just retired at 66, but though she has already retired, she has a fair amount saved so we have been doing the calculations about when she should take her social security. She is getting some benefit because she is getting my father’s SS, when he passed away, so by waiting until she is 70 to take her SS benefit she’ll get much more than if she starts to take it now.
I thought that, when your spouse dies, you get to take the higher amount per month of the two SS payments, but not both. Am I wrong? (I swear our accountant told me this)
You can’t take both at the same time, but my understanding is that you can take spousal benefit (50% of what the spouse would have been entitled to) and thus allow your own benefit to grow by delaying its payout.
Yick! That’s a terrible advice. I guess it depends if you like your current job. If you are ready to move on, there is no point staying on a few year to make a few more dollars. I think it’s better to leave and see if you can make some money while doing something you like.
when I get tempted to be depressed over the Ben and Arthur 401K graphs, I tell myself that starting a fund when I’m 16 is not the ONLY path to retirement!!
It’s important to stay healthy in order to be able to do this. I get the math, and it absolutely makes sense. I’ve seen this occur with a few folks a generation above me.
The possiblity of working more years is dependent on health, this is the first thing that comes to mind as I read this. Decisions we make now when younger will determine if that is a possibility.
Hence why investing in your health (preventative care, diet and fitness, maximizing healthy habits and minimizing unhealthy ones) is just as important as investing in your 401K!
And even that’s no guarantee (I was naive to believe that I was 100% in control of my health) though it does help…
Of course nothing is guaranteed. The stock market could lose 50% of its value tomorrow. ruining everyone’s calculations. But you have to do the best you can with what you can do. And statistically, taking care of your health generally leads to longer life (and more importantly, longer productive life).
62 and done.working beyond that is frankly a waste of time.so save while u can,have fun along the way and make sure the last check you write bounces:)
Enjoyed this article. I liked the systematic ways he presented the benefits of working longer. I think the goal of financial planning is to be as financially stable as possible and to plan for what we’d like to have happen. Life may not work exactly according to plan, but articles like these help us add flexibility into our thinking and planning.
This seems like um, no duh? If you work longer you will have less years where you have to support yourself requires math to prove?
The question is whether people will have the opportunity to keep working into old age. I work in advertising/PR which is a youth-obsessed industry, especially for women. It would be dumb to try to plan on working until I am 70 (!). Let alone for those people who have physically challenging jobs. Or the fact that people may have medical conditions that prevent them from working. So, yes, if you have the opportunity to keep working, it will help you need less. But how many of us are going to have that opportunity?
Some reasons to work in retirement:
1) Life will be more interesting
2) Friends can relate
3) Keeps your mind active
4) Allows you to try something new
5) Gets you out of the house
6) You won’t take your time for granted
However, you may not be able to work:
1) Bad health
2) Have to take care of a loved one
3) Age discrimination
4) Downsizing and layoffs
People are really pushing back on retirement these days and working a bit longer. Sometimes even just dropping down from full time to part time is a popular working choice for many retirees these days.
Everyone’s situation is different, from financial to physical, so many factors affect who can retire at what age. But it’s true that the longer the time horizon of your investments, the greater the impact of compound returns. So the ideal retirement age is really a question of each person’s circumstances. Those who’ve been able to save substantially and achieved good returns might have the liberty to retire earlier without risk of running out of money. The important thing when deciding whether you are ready to retire (whatever the age) is to be both cautious and realistic when estimating your cost of living and then comparing that to the amount you have saved. Plan for unexpected expenses (medical bills), cost of hobbies and leisure so you can enjoy your freedom, and ability to downsize quickly and easily in the event of an emergency. Diligently balancing your costs against your savings (and being realistic about it) will help you decide what age retirement is right for you.
I personally don’t want to work past 65… preferably 60 or 62… I know too many people with debilitating illnesses in their early 70’s to put it off that long. Plus as someone else mentioned, my partner is 15 years older than me and is retiring next year… if I wait until I am 70, he will likely be dead. Maybe we should both take some time off next year and enjoy our relative youth, and I can work some more later….
I am delaying retirement (again) until I turn 70. I enjoy my work and I am not ready to retire. Since my mother lived to the ripe old age of nearly 98 years old. I want to make sure that I have sufficient income to enjoy my retirement.
Your point about “Your portfolio will have more years to grow” actually has a dual advantages. Not only will the portfolio have more years to grow, but it will mean fewer years of withdrawals. People are living 20-30 years into retirement now and the prospect of exhausting retirement savings can no longer be ignored. This is even more likely if the portfolio is relatively small.
1. Don’t go into debt.
2. Save
3. Be conscientious about what you buy, especially when it comes to luxuries. Many people buy things that end up being unused and forgotten only to be pulled out years later for the family garage sale.
4. Try to live in an affordable city/town.
5. Choose a profitable career where there are many job opportunities.
My parents did all of the above, they’re baby boomers and both are retired. My step-dad says that you’ll always be comfortable if you save. They don’t live extravagantly but they’re comfortable.
It’s not all doom and gloom as the media would have you believe.
Re. living in an affordable city. I sure would like to do that but what do you do if you live in a really expensive city and that is where all your children and grandchildren live too. It is hard to move away. I figure that by 84 most of us need some help and it is time to move in with the kids then.
Sometimes you move when you don’t want to. My mom moved with me from Europe to the U.S. for a better life. She left everything behind to start over because she needed a better life.
She left her mother, her siblings, her friends, EVERYTHING she knew to start over in a strange country where she didn’t know a soul. Sometimes that’s life and you need to do what’s best and that means moving.
BTW, my mom eventually opened her own store in the U.S. and became a naturalized U.S. Citizen. I became a naturalized U.S. citizen too at the same time. I’m very proud of my mom so yes you do need to do things you don’t want to. It’s not fair but life is often not fair.
Life was not fair to my mom but she did the best she could. Life doesn’t care about what is fair or what isn’t fair. Things are what they are and you do the best you can.
RE: choosing a profitable career. How exactly does one do that? We can’t predict job trends and demand for the forty or fifty years of our career. My job didn’t exist 15 years ago, and I expect that my next job probably hasn’t been invented yet either. That’s not scary — that’s kind of exciting 🙂
I suppose you could argue that we’ll always need accountants, lawyers, doctors, engineers, etc, but I’ve seen some of these people burn out and switch careers too. I’ve seen people with life-long job security change their minds, pension plans get into serious trouble and people walk away from their office jobs to start their own business.
I think the best thing we can do is expect a lot of change and be ready to meet it by keeping up with the networking, improving our skills and simply being ready to think outside the box.
I refuse to work in low paying fields such as social work. I was choosy about my major. I’m 28 and went back to college because I don’t want to work crap jobs for the rest of my life. I chose accounting as my major for the job security.
As a woman I had to be more choosy about my career, because I don’t want to depend on a man and I care about financial independence. As a woman financial independence is very important to me.
I disagree with you, you can predict some job trends but not always. Accounting isn’t going away anytime soon.
Also some U.S. companies have been upset at the work they’ve outsourced to India. Every job has their challenges and downsides. There is no such thing as a perfect job. You deal with it, if you don’t like finance, law, or health care then don’t go into it but those who do should.
Not everyone is lucky to work jobs they love, some people have to settle for less than what they want. I never grew up saying “oh I want to become an accountant” but as a woman I feel very risk averse and I want to go for the sure thing.
When I searched job listings for accountants, accounting assistants, anything in accounting, there were plenty of listings in that field for different kinds of accounting work. That’s how I chose my career. I can’t be majoring in a low paying field such as social work or graphic design.
I’m 28, don’t have savings, and desperate. I can’t just major in any silly thing, I need to major in something realistic so please don’t tell me to not go into a stable field.
btw, not all jobs are going overseas to be outsourced.
http://www.healthcarefinancenews.com/news/survey-finds-providers-dissatisfied-outsourcing
Elizabeth, I’m not mad, I’m just VERY desperate to improve my life and going into a traditional field is the only way that I know how right now.
I’m not an entrepreneur and I’m not a genius that can just start their own company, business, etc.
I don’t have any special talent, so the only way I know how to improve my life is to get a college degree in accounting, then get a CPA certification.
I did a degree in a field that was supposed to be guaranteed — lots of opportunities, guaranteed job security, great pension plan. I didn’t pursue a “silly degree” because people told me I’d never make a good living.
Guess what? The baby boomers didn’t retire so the job opportunities never showed up. Now the market that was supposed to guarantee a 80-90% employment rate has a rate of 20%. The pension plan? Already showing sings of trouble because of the coming wave of retirees and not enough young workers to make up the short fall.
Nothing is guaranteed, and I’m sorry but I think it’s silly to disparage other people’s “silly degrees” and low paying jobs. I know people who are in lower paying fields who have greater stability than people in higher paying jobs who are maxed out. It doesn’t matter how good your income is if you don’t know how to manage it.
You have to do what’s best for you, and none of us can tell you what that is. You’re not alone in feeling the pressure to be financially independent. I hope everything works out like you hope.
I can understand where you’re coming from, but looking at job ads hardly constitutes job trend research.
Many people close to me have “silly degrees” in graphic design, personal support work, social work, etc. True, they aren’t high paying jobs, but they’re meaningful ones. Some people I know have high paying jobs and they find their meaning outside of work. Nothing wrong with that either.
i guess I’m “lucky” to have a career I love, but “luck” didn’t have as much to do with it as hard work and the willingness to do a “silly degree”.
Okay, me again. Jaimie, I apologize if my comments sound harsh. Many of us here have the same concerns you do — finding financial stability and independence. You’re in good company!
I just wanted to add kudos to you for going to college to change your live. It’s a big step, and it takes a lot of guts. Best wishes 🙂
College is my only hope of improving my life. I don’t see any other way besides college.
Jaime – Dont be so sure of that. There are many ACCOUNTANTS who are out of work right now. Not because they are not capable, but because the market is saturated.
Hi I’m sorry for getting emotional on you. Life’s tough. I think we’re all trying to do our best. Anyway I’m not mad or anything so please don’t think that. I hope you have a nice weekend and I’m sorry for getting all strange on you yesterday. 😉
1. People live longer these days, so the “retire at 65” standard is outdated.
2. However, people over 65 experience deteriorating health and may not be able to continue working.
3. Moreover, age discrimination is rampant, and has many causes. For example, older workers have more experience and higher pay, therefore are often the first ones laid off.
4. In sum: expect to work past 65, but prepare not to. That’s my strategy, anyway. I think counting on an extra 8 years to ensure your retirement is foolhardy. Plus, you’ll need to hope for good returns in a short time span, which is risky.
PS: You could very easily end up in a job you hate (to the point of slowly killing you) at age 62. I’m learning this from my mother. The thought of putting off retirement for another 8 years when you might have a way out is…unthinkable.
Great idea, best way to increase the chance you will not run out of money in retirement, is not to retire, or wait until at least all of your healthy years are gone and you get let go…
Not exactly the best scenario to be planning for, this is more of a fallback plan for when almost everything goes wrong.
It is much smarter to plan for reaching financial independence as early as reasonably possible, before either your health or the job market caves in on you.
Not just the money issue, but what about the “boredom” factor? My Mom is just about 70 running a multi million dollar department and only has a high school diploma.
She says that she cannot afford to retire but I believe the real reason is she loves her job and feels needed, because she is.
So, do not retire just because you can. Only retire because your body says you have to.
You’re generally better off by “working” longer. You can take this as putting off your social security, or getting a part time job so you have income instead of solely drawing from your accounts, or the boredom factor and being a volunteer for an organization. Many people would agree that being in some state of involvement with work is always a plus.
That said, age discrimination is sadly rampant and cannot be stopped. Companies can and will do this ongoing. But you can #1 work hard and be the best candidate to keep. #2 be ready to adapt to new challenges/jobs/tech/procedures/bosses at work. #3 Never count on your job. A six month emergency fund? Great. For every year you work at one job, add another month to the fund. Example, I’ve been at my job 10 years. If I started with a six month emergency fund on day one, I should now be up to 16 months. Easier said than done, but if you end up at a job from age 25-60, you’re looking at a nice e-fund to hold you off in case you are trying to put off Social Security to a later age, you can literally buy more time.
It’s hard to take a long view, and paranoia can make you crazy, but it’s better than being ignorant and living too much in the now when you have bills tomorrow…
I have simulated how many years one needs to work depending on savings abilities. A 30 yo person that will live until 80 and saves 50% of mensal income can retire within 20 years. The details are in the graph
http://falealgumacoisa.blogspot.com/2011/09/how-long-to-work.html