What Five More Years Means for Your Retirement
By Tony Batman, Chairman and Chief Executive Officer, 1st Global
A dignified retirement is characterized by words such as joy, significance, meaning and certainty. People want to age with dignity, and they want to be assured that they can be independent and free from being a burden to others in their retirement. However, there is a crisis of confidence surrounding retirement. More than 8 out of 10 workers are not confident they will have enough money for a comfortable retirement. In addition, 66 percent of workers say they are not confident they will have enough money to take care of necessities such as medical expenses, housing, food and transportation during retirement, according to an Employee Benefit Research Institute study.¹
The key for many to securing a dignified retirement is working a few additional years. When receiving that suggestion, many people often respond with, “I don’t want to work into my 90s.” But based on statistics from the Center for Retirement Research at Boston College, the reality is that most can significantly change their standard of retirement by working until age 70.
Aging U.S. Population
We know that America is a rapidly aging society: By 2020, 20 percent of Americans — around 70 to 80 million people — will be at least 65 years old, the traditional age at which people have retired. However, it is well documented that advances in health care, fewer smokers and a shift in the U.S. economy toward white-collar professions have pushed life expectancy to 78, with women often living longer than men. That’s the statistic that most people know, but when you dig a little deeper a surprising statistic is revealed. If both husband and wife live until age 65, there is a 50/50 chance that one of them will reach age 92. These additional years can place tremendous pressure on retirement finances.
Medicare and Social Security
One of the substantial risks these retirees are facing is the rising cost of healthcare (Read: Grow Your Business with a New Focus on Healthcare). It’s estimated that the average retired couple will spend between $250,000 and $400,000 out of pocket for their own healthcare expenditures – that’s in addition to what is covered by Medicare. This doesn’t even include eroding Medicare benefits and changes caused by the American Affordable Care Act.
Another significant threat to American retirement is a dependence on Social Security. Social Security was never designed as a retirement system; it was merely designed as a safety net to keep destitution from infiltrating all classes of society. However, if you ask average Americans, they think of it as a retirement plan. One-third of Americans are very much dependent on Social Security as an addition to income from other defined benefit plans or their own savings. Another third of Americans are totally dependent on Social Security as their sole source of retirement income.
The New Retirement Reality
How do we amass enough assets and wealth to generate a future income stream that will allow us to sustain a decent standard of living for 20 or even 30 years beyond age 65?
One simple answer is trading five additional years of work for 20 or 30 years of a more dignified retirement. By working until age 70, we have more time to accumulate savings and utilize the compounded interest function that pays dividends and builds our nest eggs.
More importantly, if we can defer retirement to 70, we can reap a wonderful government benefit of a compounded 8 percent increase in retirement benefits for each year between 65 and 70. For those with underfunded retirements, this may be only way to cure the retirement gap. That is very good news to those who think they may have to work forever and still not be able to retire comfortably.
According to the Center for Retirement Research at Boston College, a staggering 85 percent of Americans will be ready for retirement if they can delay their retirement to the age of 70.
While today's workers will need to work longer than their parents, they are also healthier, more educated and have less physically demanding jobs. A hundred years ago, America was generally an agrarian society with most professions requiring manual labor. Today, our service economy no longer requires a high proportion of Americans to work manually labor-intensive jobs that tend to wear out our bodies.
Choosing Your Ideal Retirement
Most of us can have a post-retirement career. If you think about our lives, there are three places where we get joy, significance and meaning. We get them in our educational pursuits by learning. We get them through our vocational pursuits by working and creating things. And then, we also get them in recreational pursuits. Those are about the only choices we have on how we spend our time. When people think about retirement, they don't necessarily want to stop vocation; they just want to have a choice. That's what we want as Americans — choice. Working until age 70 will give us more choices on how we want to spend our retirement, with dignity, significance and independence.
Click here to watch my AccountingWEB Live Presentation: Retirement Tools to Defuse the Demographic Time Bomb
¹ Employee Benefit Research Institute information is pulled from a 2008 survey conducted by John Hancock Funds.
1st Global Capital Corp. is a member of FINRA and SIPC and is headquartered at 12750 Merit Dr., Suite 1200, Dallas, Texas 75251; 214-294-5000. Additional information about 1st Global is available via the Internet at www.1stGlobal.com.
1st Global was founded by CPAs on the belief that accounting, tax and estate planning firms are uniquely qualified to provide comprehensive wealth management services to their clients. Each affiliated firm is provided with education, technology, business-building framework and client solutions that make these firms leaders in their professions through dedicated professional client relationships built around wealth management.