Retiring Later to Close the Financial Gap May Be Just Fantasy
Don’t Doom Your Secure Retirement By
Thinking You Can Work Longer
While you may be the one who defies the odds and works past the ‘real’ retirement age, chances are you won’t.
That’s right, you’re likely to retire earlier than you plan.
Long term data, across numerous studies, show the current average retirement age is 62.
Gallup conducted one of the many research surveys that show the average retirement age to be an unexpectedly low 62.
Some pre-65 retirees are intentional and well-prepared. But most are involuntary, forced to retire well ahead of the age they planned and budgeted.
In a Merrill Lynch study Americans’ Perspectives on New Retirement Realities, the majority of current retirees they surveyed, 68%, retired younger than planned.
The top two reasons were “I had a personal health problem” (34%) and “I lost my job” (24%).”
When you include the sixth reason, “I had to look after a loved one” (10%), a total of 68% of those who retired earlier than planned did so because of reasons out of their control.
It’s not that they wanted to retire, it’s that life’s circumstances forced them.
These events are hard to predict, but often result in retirement well ahead of the intended target date. And the underlying reasons are difficult or impossible to resolve, and can stand in the way of restoring your pre-retirement income.
In your pre-retirement years, there can be real harm in thinking you’ll be able to work well beyond the current average retirement age of 62.
The extreme danger in thinking you can work much longer is you might not be aggressive enough in your financial preparations to create the retirement you deserve if you’re forced to retire early.
I’ve talked to far too many who, behind on their retirement, just say “I’ll work until I drop” or “I’ll just have to work until I’m 70-something.”
An uneasy chuckle often follows.
For some, for various reasons, there isn’t any other option but to work as long as they can.
But the idea of working longer as a means to compensate for a shortfall in retirement preparation is dangerous.
You simply can’t assume that you won’t end up in the situation that 68% of retirees in the Merrill Lynch survey found themselves pushed into.
In fact, they retired at 55 and 48 respectively. Which was good, because my uncle passed away at 75 and my aunt at 83, both well before they expected.
Had they worked until their late 60s, or into their 70s, their retirements would have been tragically short.
But they never had to depend on planning to work past their retirement ages because they were prepared.
They enjoyed their pre-retirement years, but were very frugal in their non-priority areas, keeping their burn rate and debt levels low.
Their consistent investment returns, along with their focus on grabbing all the free money they could, also helped them reach their retirement day fully funded, with the equivalent of $1.1MM of assets in today’s dollars. An impressive sum by any standard.
But we added this eighth disaster driver because far too many people today are sidestepping their responsibility to plan their secure retirement by thinking they can work forever.
As the real life data show, there’s over a two thirds chance they won’t.
But what is guaranteed is that, in using the ‘work longer’ line of thinking as an excuse for delaying preparation, they will squander the precious time they have ahead of retirement to build a brighter financial future.
No matter how bad your current position, it’s certain that it will be better if you begin taking steps immediately to begin saving.
Time can either be your enemy or your friend. It’s your enemy when you start too late, and the awesome power of compound interest is reduced to a mere whimper.
It’s your enemy when you have too few years left of your career to save at least some level of funds you can depend on in retirement.
Or when you realize you’ve flushed tens or even hundreds of thousands of dollars down the drain in employer matching funds because you didn’t enroll in your company’s 401k.
And those few extra dollars that hit your paycheck because you’re not saving for retirement are typically flushed down the drain on things you’ll barely remember. Spending them robs you of the peace of mind that comes from knowing you are preparing for a secure retirement.
Even if you’ve built a solid retirement plan, if it assumes working until 65, 67, or later, you’re still at grave risk.
If the ‘real’ retirement age is 62, then your plan assumes working an extra 3, 5, or more years than you’re likely to work.
And those final years can be powerful in boosting your savings because your income may be at its highest, and compound interest is working its magic on the largest retirement savings balance of your life. Having those final few years ripped away can tragically reduce your final asset balance.
So what can you do today to reduce your risk?
If your target retirement date is 20 or more years beyond your current age, cut it by five years and reformulate your retirement plan. Then implement that new plan immediately.
A lot can happen in 20 or more years that may either cause you to desire an earlier retirement age, or force you to leave your career ahead of when you expected.
If your current target age is 67 or older, cut it by five years even if you’re 47 or older.
The objective of reducing your target date by five years is to prepare you for the 68% reality of being forced to retire ahead of when you expect.
The other benefit is that you can identify any shortfalls in your current plan when you give it the age 62 pressure test.
Or, you may be pleasantly surprised that you’re well-prepared should early retirement either become attractive or forced.
If you build your plan around the necessity as well as the belief that you can work until 67, and you’re instead forced to retire 5 years earlier at 62, your retirement may be a financial disaster.
At a minimum, your anticipated standard of living in retirement will have to be substantially lowered.
Conversely, if you are well prepared to retire at 62 even though you desire to work to 67, if you are able to work those additional five years, you will be in an even stronger financial position.
The better funded you are, the more flexibility you have to weather the curveballs life may throw later.
So what should you do if you currently are counting on working until 70 or beyond and you have no current retirement plan?
Sometimes we believe a situation is so bad that it simply cannot be salvaged.
But positive action will help you even if you have just a few years to retirement.
The reason most feel unable to save for retirement is that they are living paycheck-to-paycheck with nothing left over for retirement savings. That cycle must be broken immediately, even if it involves extreme sacrifice.
Because whether you do it now or in retirement, you will eventually be forced to balance income and spending. No if, ands or buts.
The sooner you do it ahead of retirement, the more free money you can grab from your employer from matching funds, as well as in tax benefits from the government.
And most of all, you’ll gain peace of mind in two ways.
First, you’ll know that you can balance your spending and income yet still survive.
Second, you’ll start to see your retirement savings begin to grow, partially fueled by a combination of free money from your employer and the power of pre-tax contributions.
Whether you already feel prepared but have a plan built around retiring at 65, 67, or later, or you haven’t started saving, commit to your secure retirement by accepting the likelihood that you can work forever.
Chances are you won’t be able to. In fact, statistics say 62 is the magic number. Don’t live your retirement years in deep regret. Take action today!