70 is the New 65 –

Saving for retirement must become a priority for most Americans. You will be disappointed if you plan on relying on the federal government. Sadly, most baby boomers have this plan in mind. This might explain why many lost huge amounts in the 2008-9 crisis. They substituted a disciplined savings plan with excessive and inappropriate risk in their portfolios.

retirement (Photo credit: 401(K) 2012)

Late baby boomers and the generations that follow are slowly beginning to realize and accept that 70 is the new 65. Retirement on The Golden Pond at age 65 is fast becoming a luxury that few will be able to afford. Most workers haven’t saved enough, and government programs cannot be counted on for a bailout. The solution is to work to age 70, at least part time, and delay taking Social Security benefits.

The past few years saw a sharp decline in Americans’ confidence about their ability to secure a financially comfortable retirement, according to 2012 Retirement Confidence Survey (RCS) published annually by the Employee Benefit Research Institute (EBRI). The age at which workers expect to retire is slowly rising. In 1991, 89 percent of workers expected to retire at or before age 65. Twenty-one years later, in 2012, only 63 percent of believe they will have the same opportunity.

Other interesting facts from the survey show that in 1991, about 50 percent of workers thought they could retire earlier than 65. The number today has dwindled down below 24 percent. In fact, more people today believe they will be working at age 70 than retiring before age 65.  In 1991, only 9 percent of workers believed they would still be working at age 70. The number today is 26 percent.

One reason people expect to work longer is because saving for retirement has become more difficult. Only 66 percent of workers reported that they or their spouses have saved money for retirement. That’s down from 75 percent in 2009, according to the RCS.

More than half of workers (60 percent) report they and or their spouses have less than $25,000 in total savings and investments (excluding home equity and the present value of a defined benefit plan). About 30 percent of workers reported savings of less than $1,000.

Saving at work has helped. Workers who contribute to a retirement savings plan at work are considerably more likely (76 percent) to have saved at least $10,000 than those who are offered a plan but choose not to contribute (42 percent) or are not offered a plan (37 percent).

Another reason people are expecting to retire at a later age is a growing skepticism about Social Security. About two-thirds (64 percent) of workers are not confident that Social Security will continue to provide benefits of at least equal value to the benefits retirees receive today. Workers today are half as likely to expect that Social Security will provide a major share of their income in retirement (31 percent) as retirees are today (69 percent).

One benefit to working to age 70 is that a person can significantly increase their Social Security benefits. This is called delayed retirement credits. A person who delays taking Social Security will increase their monthly benefit increase by 8 percent annually after age 65 until age 70. For example, if a 65 year old waits until age 70 to collect, their monthly benefit will be approximately 40 percent more. Delayed retirement credits end at age 70, so there’s no reason to wait after that.

The 2012 RCS finds that workers also feel more uncertain about Medicare’s future. About two-thirds (64 percent) of workers are not confident that Medicare will continue to provide benefits of at least equal value to the benefits retirees receive today. In addition, 75 percent of workers believe they are very (42 percent) or somewhat (33 percent) concerned that the eligibility age for Medicare will increase before they retire.

Unfortunately, workers don’t see employers funding the health care gap between age 65 and whatever the Medicare retirement age may become, although attitudes appear to be changing. In the 2011 RCS, one-third of workers reported that they expected to receive health insurance from an employer (36 percent) after retirement. That’s better than the 27 percent of current retirees who reported they actually received health benefits from previous employment.

Today’s workers are beginning to see their retirement future, and one fact stands out clearly − age 70 is the new 65. People realize they’ll be working longer, delaying Social Security benefits to take advantage of delayed retirement credits, and relying more on employers for the health care gap if and when the age for Medicare extends past 65. Life on the Golden Pond is still possible in America, but it take a little more time.

Americans are beginning to believe that if they do not save for their own retirement, they will not be able to retire. Saving for retirement should become a part of your budget. The fixed part, that is, it does not change.

Please comment or call to discuss.

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