Financial Planning, Retirement

Postponing Retirement Is Not Always An Option

1/23/20 12:00 PM

iStock-626627280.jpgIn the United States, the traditional age of retirement has long been considered 65 since this was for many years when a person could receive their full Social Security benefit. However, more and more senior Americans are continuing to work well past the age of 65. In fact, roughly one out of every five adults age 65 or older was still a member of the workforce at the end of 2019, according to the latest job report from the Bureau of Labor Statistics. That ratio is even higher after excluding older individuals physically unable to work, and compared to other age cohorts the 65 and over group has seen significantly larger gains in labor force participation over the past two decades. This trend may not reverse any time soon because some projections using Labor Department data suggest that nearly a quarter (23 percent) of all Americans ages 70-74, and 14 percent of adults ages 75-79, will still be a part of the U.S. civilian labor force in 2024, basically double the proportions seen in 1994.

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Such estimates are supported by an updated Transamerica study which found that more than two-thirds (69 percent) of surveyed Baby Boomers plan to work past the traditional retirement age of 65, including 16 percent who do not expect to ever retire. For some Americans, continuing to work after the age of 65 will be because they are passionate about their profession or simply have a desire to stay active, e.g. many respondents said that during retirement they plan to “pursue an encore career” (13 percent), “start a business” (13 percent), and/or “continue to work in the same field” (11 percent). For other Americans, though, continuing to work in old-age will be a necessity because they must earn a few more years of income to make up for inadequate retirement savings. That is not a bad idea considering that an analysis by the Urban Institute estimated that working for just five more years could result in as much as a 56 percent increase in retirement income based on the incremental net wealth accumulated. However, it may be dangerous to assume that delaying retirement and continuing to work will always be an option. An earlier report from Prudential, for instance, found that of the 51 percent of surveyed retirees that retired earlier than planned, only 23 percent did so by choice.

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Forty-six percent of those who retired earlier than anticipated instead did so due to health problems, 30 percent were laid off from their jobs or offered an early retirement incentive package, and 11 percent left work to take care of a loved one. Perhaps even more alarming is that in the past we learned how both blue-collar and white-collar occupations already face age-related employment challenges, but now a new study from Boston College’s Center for Retirement Research suggests that such problems could be even greater than previously estimated due to the rise of robots, artificial intelligence, and other forms of automation in the decades ahead. Altogether it appears clear that Americans should try to hedge against such longevity risks by striving to save as much money for retirement as possible. Utilizing tax-advantaged vehicles like 401(k)s, IRAs, and HSAs can provide additional help, and the sooner one can start the better because compound interest and other investment returns over long time horizons are among the most powerful ways to ensure a comfortable and financially secure retirement.

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Sources: U.S. DoL, SCL, TCRS, The Urban Institute, Prudential, CRR

Post author: Charles Couch

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