February 16, 2011
Meet Fiona Bayliss, 91. She is active, healthy, involved and … working.
The owner and sole employee of Fiona’s Antiques and Gifts in Glendale, Calif., is part of what Catherine Collinson, president of the Transamerica Center for Retirement Studies, says is the aging population’s most sweeping trend — the working retirement.
Nearly two of every ten 70-year-olds are working today, according to the Bureau of Labor Statistics. And some 40 percent of baby boomers, who are just beginning to hit their mid-60s, say they expect to work past age 70, if they retire at all, according to a survey by the Transamerica Center, a non-profit foundation funded in part by Transamerica Life Insurance Co.
A confluence of factors — many of them financial — have made the vision of a leisurely retirement on the golf course or front porch as outmoded as petticoats, says Alicia Munnell, director of the Center for Retirement Research in Boston.
The baby boom generation is healthier, likely to live longer and is more likely to need costly long-term care than previous retirees. Meanwhile, the Social Security system is fast running short of cash, which has revived talk about raising the retirement age on the nation’s cornerstone retirement safety net once again. Social Security revisions in the 1980s raised the age for people born after 1942 to collect full benefits to 66 or 67, depending on the year they were born.
Company pensions that once promised regular monthly checks to nearly half of full-time workers are being phased out in favor of so-called defined contribution plans, with names such as 401(k), 403(b) and 457. Fewer than 10 percent of private-sector employees still have the old-style pensions that paid steady benefits for life; the new plans pay out what you paid in, plus interest or dividends. For those who didn’t save enough or didn’t invest wisely, they could prove vastly inadequate.
If that weren’t enough, the investment landscape turned sour just as baby boomers were getting ready to quit the working world, leaving them with little or no return on their stock portfolios for more than a decade.
The bottom line: People who felt certain they were racing toward a rich retirement in 1990 are far less certain of their ability to finance retirement today. “If you have a job, I think you should cling to it,” says Munnell.
Of course not all older workers are in the job market simply because of finances. “I don’t think there is any evidence that having 30 years of leisure and no obligations of any type is psychologically beneficial,” says Laura Carstensen, director of Stanford University’s Longevity Center. “People like to be useful.”
Ask Bayliss whether she plans to retire, and she looks surprised: “Retire? What would I do? Sit home and watch the wall paper fade?”
Then again, she admits that if she had more money, she might travel and hire a clerk or two to help out. Right now, a cadre of friends help in the store when Bayliss needs to restock or take time off. If she wanted to retire, she couldn’t, she adds. She simply doesn’t have the savings to do it.
Some 50 years ago, she and her husband bought the building to launch her shop, stretching their finances to do it. He died of cancer when she was 46, leaving her with two mortgages — one on their home and one on the shop — and a young son. There just wasn’t money to save. “You try to make the best of things,” she says.
There are things you can do to ensure a better outcome. You may still choose to work into your 90s, but more assets mean more options.
Most people don’t know how much they need to save. When Transamerica asked people how they determined whether they’d saved enough for retirement, Collinson says, the majority said they just guessed. Just 41 percent used a reasonable method to estimate their needs, such as consulting an advisor or filling out a worksheet.
Guessing isn’t good enough, she says, and it’s easy to do better. There are hundreds of retirement planning worksheets on the Web that can help estimate how much you’ll have and how much more you ought to save. Kiplinger’s Personal Finance magazine’s web-based retirement planner, for instance, allows you to plug in how much you’re expecting from Social Security and pensions, how much you have saved, whether you expect to tap the equity in your home, and choose among a few investment assumptions. The calculator then determines how much you’ll need and whether you’ll have it. If you’re likely to fall short, it provides the amount to save each month from now until retirement to get the nest-egg you want.
It would be a lot easier to plan if we all just knew how long we’d live and whether we would remain healthy or be riddled with ailments, says Carstensen. Unfortunately, it doesn’t work that way.
What’s happened with your parents and close relatives can offer clues to whether your genetic make-up suggests you’ll live longer than average. Lifestyle and habits also can be predictive. Either way, average life spans are creeping up by about one month per year and have doubled over the past century, says Carstensen. Figure that you’ll live longer than your parents, and expect to need savings into your late 90s.
Don’t Ramp Up, Catch Up
Couples often start to feel flush in their 50s, when they’re in their prime earning years and often have finished paying off life’s biggest expenses, such as their mortgage or children’s college bills. They ramp up their lifestyle, a mistake that can cripple a comfortable retirement, Munnell says.
Ramping up your lifestyle not only leaves you short of savings, it boosts expectations for retirement, she says. That combination is a one-two punch to retirement readiness. “Controlling your spending has a bigger impact on your retirement security than even the amount you save,” she says.
Phase Out, Don’t Check-Out
One reason people look forward to retirement is they’re often overworked before retiring, says Carstensen. Working non-stop for 40 years and then doing nothing for 30 is a poor model for life, she says. Even if you work just a few hours a week, the money you earn is money that doesn’t need to be taken out of retirement accounts. That makes your savings last longer.
In addition, the longer you work, the later you can start to collect Social Security benefits, says Munnell. Waiting to take Social Security until age 70, gives you 75 percent more in benefit payments each month than if you’d claimed benefits at 62. “Working longer is a really potent lever,” she says. “It increases your Social Security income, it allows your savings to grow and it shortens the amount of time that you live on your savings alone. Basically, it changes the arithmetic.”
Some Seniors Working Past Retirement Age (St. Albert Gazette)
Working Past Retirement Age Helps Ward Off Dementia (Boston Globe)
Secrets to Maximizing Social Security (Kiplinger)