a workable solution for baby boomers near retirement

7/31/2019 A Workable Solution for Baby Boomers Near Retirement

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Surveys show that most baby boomers plan towork in some capacity during their retirementyears. The question is, should you keep work -ing a little longer at your primary career (that

is, delay retirement), or should you retire early and

Boomers who are tired of their jobs are naturallyeager to get out of the rat race and do somethingmore enjoyable and fulfilling. But there is prettyconvincing evidence why working in ones primarycareer just a few years longer can make a huge dif -ference in the amount of money a retiree has avail -

able in retirement.

In a report titled Retirement Age and the Need for

the impact of retirement age on the total assetsneeded in retirement. Here is the conclusion:

Every additional year of work leaves members of ahousehold with more income, a shorter retirementto finance out of pocket, more time to save and earnreturns, and higher Social Security benefits. Taken

together, those factors can substantially reduce theprivate assets that the members of the householdneed to accumulate to maintain their working-agestandard of living in retirement.

Consider a married couple in their early 60s earn -

income of married households ages 55 to 64. After

A Workable Solution for Baby Boomers Near RetirementBy Elaine Floyd, CFP

Worried about having enough saved for retirement? Heres a simple ap-

proach: work just a few years longer. By accumulating more savings and

shortening your withdrawal period, youll reduce the lump sum needed to

generate the necessary income at retirement.

ADVISOR/CLIENT EDUCATION BRIEF

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paying federal and state income taxes and SocialSecurity taxes, the couple takes home about $58,600

in annual income. To replace 80% of their incomein retirement, they will need $46,900 in after-taxincome.

If both spouses retire at age 62, the couple will re -ceive about $20,100 in Social Security benefits annu -ally. This means they will need another $26,800 ofafter-tax income per year. The CBO estimates that itwould take a lump sum of about $510,800 at age 62to generate the necessary income.

If the couple were to retire one year later, at age 63,their annual Social Security benefits will increaseto about $21,600, so they would need to finance$25,200 per year after taxes themselves. In thiscase the required lump sum drops to $465,000. Theamount the couple needs to accumulate continuesto decline for each year that they delay retirement,to about $298,400 if they retire at age 66 and toabout $117,700 if they retire at age 70.

Work now or later?

Leading-edge boomers who are worried that theyllnever have enough saved may be glad to know that

-ment dilemma. You need not work forever -- just afew more years. Doing so allows you to both savemore and reduce the amount of personal assets

needed.

OK then, if working is the solution to retirement,what about taking up a new line of work after leav -ing ones primary job? The problem here is thatpost-retirement jobs generally dont pay very much.Fun jobs, such as fly fishing guide or tour director,

such as teaching or nursing, may require costlytraining and will likely start at the bottom of analready-low pay scale. Among the current genera -

tion of retirees the most common type of job by faris the one the retiree didnt plan for -- the Wal-Martgreeter or Home Depot clerk who had to go back towork to make ends meet. These older folks may in -deed enjoy their jobs, but you can be sure they dontmake very much money. Boomers have the opportu -nity to escape that fate by working just a little longerat the front end of their retirement years.


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following benefits:

More salary to save and invest or pay downtdebt. Pre-retirees at the peak of their careerscan make substantial contributions to theirretirement and investment accounts and stillenjoy many more years of compound growthon those assets. Alternatively (or in combi -nation), they can dedicate a chunk of theirincome to debt reduction, thereby loweringtheir expenses in retirement.

Higher Social Security benefits. Applying fortSocial Security benefits at full retirement age(66 for anyone born between 1943 and 1954)produces a 25% higher benefit than applyingfor early benefits at age 62. Waiting until age70 more than doubles the benefit comparedto the amount available at age 62. And sinceSocial Security is based on the highest 35years of earnings, boomers who took time outof the work force or had low-paying jobs earlyin their careers can boost their primary insur -ance amount by replacing those low- or zero-earning years with the high-earning yearsthey are enjoying now. (This especially appliesto women.)

Higher pension benefits. Whether a pre-t

retiree participates in a traditional pensionplan with benefits based on salary and yearsof service, or a 401(k) plan with an employermatch, working longer will, in most cases,boost those benefits and result in more assetsto draw from in retirement.

Save on health insurance premiums. Retireestwho go from an employer-sponsored healthplan straight to Medicare at age 65 can avoidthe high cost of individual health insuranceduring ages 55-64.

Working longer will not be a solution for everyone.Some people are forced into retirement by theiremployers or for health reasons. Those who are setwith generous pensions, substantial personal assets,and employer-sponsored health insurance may havethe luxury of not working at all.

But boomers who are at the peak of their careers

may be glad to know that staying in the work force

in the amount theyll need to save. Then they canexplore some of those interesting encore careersthat will give meaning to the rest of their lives.

Reference: Retirement Age and the Need for Saving

http://www.cbo.gov/ftpdocs/54xx/doc5419/05-12-RetireAgeSaving.pdf

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a workable solution for baby boomers near retirement

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