Retirement Readiness: Is the Deadline Still the Same?

The idea of retiring and having a golden age of leisurely cruises and book clubs seems to have been left behind. Nearly 68% of employees say they expect to work for pay in their retirement years so it stands to reason that they’d work in their careers longer.

If you are over 55 it may feel like every other person you interact with on financial matters has asked you if you know your number. It’s not all that different from your parents asking when you’ll marry that nice boy you brought home.  It might even feel as annoying as your mom asking why all her friends have grandchildren and she doesn’t? For Americans over the age of 55, retirement may seem like one more life event that has a set of rules of engagement that must be followed. And yet…  

Americans are retiring at later ages than ever before and doing their retirement in new and perfect ways.  Since the early 1990s, Americans are taking their social security benefits later: in 1997 57% of men applying for social security retirement benefits were 62. The same percentages (roughly) hold for those working into their 60s, regardless of gender.

Some explain the change in retirement as based on an increase in life expectancy.  Others note that pensions themselves have changed, and there is less incentive to retire earlier and more to work and let the savings continue to compound and earn interest. Life expectancy for lower and middle -income workers hasn’t changed all that much however, as access to health care (as well as health status while working) negatively impact life expectancy.

So, are Americans changing how much they are saving for retirement? The advice on retirement readiness usually has those same age-based event timelines as mentioned above. That is, some advice suggests having saved the same amount as your income by age 30, three times by age 50 and five times by 55 and be ready to retire at age 67, on the same lifestyle and expenses. Under this theory, the average American would need to save between eight and ten times their regular income by age 67. In other words, if you earned $60,000 a year, you would need to save $600,000 by the time you retired. This assumes that the average worker doesn’t have any breaks in work and has a small but steady increase in salary over time.  

And yet. This conventional wisdom might not apply to those who want to retire later. While someone with a physical job – like a school teacher or physical plant worker – may want or need to retire in their 60s, someone with a less physical job – like an administrative assistant or an archivist. And while some folks work as a way to earn income, others may feel like their work is an integral part of their identity and choose not to let go of it as early.

Retiring later, as the trends indicate, is the hat trick of retirement readiness. The three fold impact of having more time to allow the magic of compound interest to work on your savings, plus having less time without an earned income, and having potentially higher social security benefits, means that those saving for retirement may not need those traditional benchmarks.

In fact, some analysts even recommend that middle-income families wait until age 70 to retire so as to capture the sweet spot of social security benefits. Some analysts say that even a one or two year delay in retirement age can have big benefits on retirement savings.

Additionally, the idea of retiring and having a golden age of leisurely cruises and book clubs seems to have been left behind. Nearly 68% of employees say they expect to work for pay in their retirement years (yet only 26% of those employees actually can follow through on this). It stands to reason then that more workers would hold onto their traditional jobs and careers as long as they can before taking on a retirement job.

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