Just keep working: the new retirement strategy

The number of labor force participants over age 65 has increased about 22 percent in the past three years.

Irene Olsen works in Milford, Conn. Olsen 95 works 20 hours a week at the Milford Senior Center to pay for rising taxes and utilities. (AP Photo/Douglas Healey) Irene Olsen works in Milford, Conn. Olsen 95 works 20 hours a week at the Milford Senior Center to pay for rising taxes and utilities. (AP Photo/Douglas Healey)

Many individuals who thought they would be able to retire when they reached age 65 are reconsidering because of the economic downturn and a sudden realization that they haven’t saved enough to live comfortably in retirement.

Retirement used to be an age-driven event, but now people are thinking about it from the perspective of, “Can I afford to retire,” said Joe Ready, director of Wells Fargo Institutional Retirement and Trust. In a recent survey of middle class people, those who make less than $100,000 a year, 25 percent of respondents said they would have to work until age 80 to be able to afford retirement.

“We always knew that three out of four people would work in retirement, but working until age 80 is very much a sea change,” Ready said.

The reality is that the majority of people don’t think very much about what they are saving for retirement and whether it will be enough to retire. Some of that is age specific. People nearing retirement age are very concerned with whether or not they will be able to retire, but more than half of respondents between the ages of 60 and 75 said they plan to fully retire, according to the “Retirement Fitness Mass Market Report,” which was conducted by Harris Interactive on behalf of Wells Fargo.  

At least half of Americans in their 40s and 50s said they view working during retirement as a financial necessity. Twenty-five percent of individuals surveyed said they view work as something they will have to do until they are at least 80 because they do not have enough retirement savings to live comfortably in retirement, the report found.

“I don’t think we’ve thought of the implications for that. Think of it from a corporate environment perspective. What does that mean for companies with an aging workforce and what does that mean for a younger workforce?” asked Ready. “Think of these individuals. Will they physically or mentally have the capacity to work to that age? There are some pretty big societal issues and corporate issues people haven’t begun to think about.”

An AARP survey in 2008 had similar results, with 70 percent of mature workers saying they plan to work into their retirement years. Twenty-seven percent of those said they needed to keep working because of money, while 21 percent said they enjoyed working and wanted to keep their jobs.

“Our study confirms that many mature workers are ready to work in some capacity in what used to be called the retirement years,” said Deborah Russell, AARP’s director of workforce issues, in announcing the results of the study. “Forward-looking companies that want to address the looming ‘brain drain’ by tapping the pool of experienced workers need to offer creative programs and policies to appeal to that group.”

In its “Work and Career Study” report, AARP found that an aging workforce means American businesses are running out of time to prevent labor shortages, talent wars and knowledge loss. For the 10-year period ending in 2016, the study cites federal government projections that the age 55-plus workforce will grow five times faster than the overall labor force. This survey interviewed 1,500 workers between the ages of 45 and 74.

When asked how much they would need to retire, the median response was $350,000, according to the Wells Fargo survey.

“That’s good from a practical standpoint, but the bad news is they haven’t saved much toward it,” Ready said. The median amount saved for retirement, of those surveyed, was $25,000.

The survey also showed a disconnect between what people wanted for their retirement and what they were doing to achieve it. Most people surveyed said they expect to live 21 years in retirement. Since most people are living until their mid-80s, that is pretty close to reality, he said. But when they were asked how much they expected to withdraw from their retirement savings annually, 56 percent said they would withdraw an amount greater than 6 percent.

“That doesn’t work in terms of their 21-year time horizon. The numbers don’t add up between what they will have in retirement and what they will save. They are significantly overestimating that their withdrawal estimate will last for 21 years,” he said.

The Wells Fargo survey asked whether different age groups would be willing to allow cuts to their Social Security benefits. Of those aged 25 to 49, 49 percent said they would be willing to take benefit cuts. Only 28 percent of those aged 50 to 59 said they would be willing to accept a cut, and 19 percent of those aged 60 to 65 said they would allow a cut.

Most Americans over age 50 consider Social Security a large part of their retirement income. “Younger workers may feel they have more runway to save, which ties into how they feel about 401(k)s,” Ready said. “Middle class Americans do value their 401(k) benefit.”

Without pensions or a guarantee of Social Security benefits, most people under age 50 use their 401(k) as their main retirement vehicle.

The AARP Public Policy Institute released an alert this week looking at employment numbers for older workers. What it found is that the unemployment rate for people over age 55 dropped from 7 percent in October to 6.4 percent in November. That number is double what it was at the start of the Great Recession in December 2007, the report said. That means 2 million people over age 55 were unemployed in November.

It isn’t easy for older workers to reenter the workforce. Once unemployed, older workers are usually out of work longer than their younger counterparts, the report found.

“Despite continuing high unemployment rates, millions of older Americans have succeeded in remaining employed, and the number with jobs has increased in most months since the start of the recession. Since December 2007, the employed population aged 55 and over has increased by about 3 million, or by 11.5 percent, but employment remains below what it was for the other age groups,” the report said.

The labor force participation rate of people over age 65 has increased dramatically in recent years. In 2010, 17.4 percent of people over age 65 were in the labor force, compared to 10.8 percent in 1985, according to the AARP Public Policy Institute. The number of labor force participants over age 65 has increased about 22 percent, or 1.3 million workers and job seekers, since December 2007.  As of November 2011, 7.3 million members of the labor force were at least 65 years old.

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