The famous comedian George Burns, who lived to the ripe old age of 100, once said, “Retirement at 65 is ridiculous! When I was 65, I still had pimples.” Did you know that some researchers claim the first person who will live to the age of 200 has already been born? That’s not only an amazing revelation; it’s a scary one—especially as we consider how long our money is expected to last us in retirement. Without geeking out over the math, I think it’s safe to assume the average American can’t retire at age 65 and expect their savings to last for 135 years!
Most of us will not have to consider planning to live to the age of 200, but we are seeing a significant trend of people continuing to work past the age of 65—which has long been considered the retirement standard. According to the U.S. Bureau of Labor Statistics, the number of people ages 65 and older in the workforce is increasing faster than any other age group, while participation among other age groups remains flat. It appears there are several factors driving this trend.
Increased Life Expectancies
What is considered “early” retirement today? Most people answer that question in terms of age. Is retiring at age 50, 55 or 60 considered “early”? In light of longer life expectancies, there could be such a thing as retiring too early. If we consider the person who might live to 200 years old, what age is too early to retire?
More and more people are beginning to categorize “early retirement” based not on their age at retirement, but by the number of years they will potentially spend in retirement. According to the Social Security Administration, a person retiring at 65 has an average life expectancy of 85—that’s nearly 20 years spent in retirement, living off the savings we manage to accumulate while working. The fact that we are living longer is most certainly driving us to work to an older age than ever before.
As a society, we have been conditioned to spend and to seek immediate gratification. America’s savings rates have plummeted since the 1960s, when personal savings rates averaged between 10 and 13 percent. By 2018, our national rate of savings had declined to around four percent. In contrast, the standard benchmark in financial planning is to begin saving 15 percent of your annual salary at age 25, and maintain that rate throughout your working life.
Previous generations could count on corporate pensions, along with Social Security, and get by saving less than the standard. But with most pensions having disappeared, we are left with Social Security and whatever we manage to set aside for ourselves. Our lack of savings is pushing us to retire later—and shows no signs of reversing anytime soon.
Our health—and the rising costs of maintaining it—is also having a tremendous impact on how long we are working. According to Fidelity, medical expenses for a couple retiring in 2019 at age 65 were expected to be $285,000, including long-term care, during their lifetimes. In the United States, we become eligible for Medicare coverage at age 65. The ability to maintain corporate health insurance if we retire before age 65 is becoming less common, which means early retirees must somehow supplement their health coverage between retirement and age 65.
One option is COBRA continuation of your employer policy, which can be very expensive because you are now paying both your portion of the health insurance premium as well as what your employer had been paying. Other options may include the public marketplace (if your income is low enough), or private insurance, which will also be much more expensive. These factors are pushing more people to work until they are eligible for Medicare.
Finally, we are also choosing to work longer because of the dramatic benefits of staying active, both mentally and physically, as well as maintaining our social networks. That’s why many people choose to cut back their hours and enter retirement more gradually. This can offer the best of both worlds: the employee can contribute their valuable skills and knowledge to their employer, while at the same time enjoying more time with family and friends, travel and other leisure activities, or whatever else is important to them in their retirement years.
As Bob Dylan told us in 1964, “The times they are a-changin'”—and they always will be. As long as there are employees who will eventually have to stop working, there will be new ways to think about retirement. Today, retirement doesn’t have to mean a full stop from our working lives. It can be anything from working full-time into our 70s to just trimming hours and easing into retirement. It could mean taking a new job with less responsibility and stress. For some, it could even mean starting that business they’ve always dreamed of. The possibilities are truly endless. One thing is certain: there is only one person who can decide when and how you retire, and that person is you! PM
Todd A. Hasty is a wealth advisor with Nash – Hasty Investment Services, Inc. Learn more at nash-hasty.com.