When Should I Retire?

    When is it time to retireThere was a time when no two words were more closely associated with each other than “65” and “retired.”

    The two were a couple for so long they were interchangeable. If people said “When I turn 65 …” it meant “When I retire.” Likewise, if they said “When I retire …” it meant “When I turn 65.”

    Unfortunately, that couple has drifted apart. The new, more accurate, way to describe retirement might be: “When I turn 70 …”

    Congress was the first to start delaying retirement when it passed a lightly-publicized rule change in 1983 that said Full Retirement Benefits (FRB) would not be available until you turn 66. If you were born in 1960 or later, FRB won’t be available until you turn 67.

    You can still retire at 62 (or 63, 64 or 65), but will receive only a portion of the benefits you would get by waiting until 66.

    The 1983 rule change was enacted gradually and took full effect in 2009. That coincided with the Great Recession, which destroyed many retirement accounts, especially those relying on 401(k) investments.

    Many people had to postpone retirement and some who had retired, decided to return to the work force because their savings were devastated by the real estate and stock market collapse.

    That was when the first whispers started that it might be wise to wait until 70 to retire.

    50-50 Bet Retirees Run Out Of Money

    Working an extra four or five years may not sound appealing, especially to the Baby Boomer generation that is flooding through the retirement gate at the rate of 6,000 per day. However, for at least half of them, it might be the difference between a poverty level existence in retirement and one that is tolerable, if not extravagant.

    The Retirement Research Department at Boston College and EBRI, a non-profit institute in Washington, D.C., have done extensive research on America’s readiness for retirement and both say in the current conditions, it’s a 50-50 bet that Boomers (people born from 1946-1964) run out of money before they die.

    “Our research finds that many people may have to delay retirement far beyond age 65 to increase the probability that they have enough money to cover their retirement expenses at a comfortable level,” Jack VanDerhei, research director for EBRI, said.

    Here are some of the startling facts uncovered on Boomers readiness to retire:

    • More than half (52 percent) of current workers have less than $10,000 in retirement savings. They will need a nest egg of $166,696 to withdraw just $1,000 a month for 20 years of retirement. That egg needs to have $333,392 in it to draw $2,000 a month for 20 years.
    • The average monthly Social Security benefit is just $1,301 or $15,600 a year. The average benefit for married couples is $2,111 a month or $25,332 a year. That is the only source of income for 35 percent of retirees.
    • The average household drags $140,000 of debt into retirement (mortgage payments, credit card debt, car loan and student loans).
    • Pension funds cover only 15 percent of retirees. The average fund has $5.17 trillion in obligations and only $1.94 trillion in assets, meaning they could be empty before it’s time to collect.
    • About 30 percent of people between the ages of 65 and 70 are still working.

    Social Security Offers Incentive To Wait to Retire

    Those are a few of the reasons that talk – very quiet talk – has started about raising the retirement age.

    The SSA already offers an incentive to people to work until they are 70. Retirement benefits go up 8 percent for every year a person works past his/her 66th birthday. That’s a 32 percent jump in monthly payments.

    In real dollar terms, that means if you were scheduled to receive the average Social Security payout of $1,301 a month, it would jump to $1,717 a month by working another four years.

    The added time at work would give your retirement savings a chance to grow and limit exposure to medical bills, if the job you have provides those benefits.

    The dramatic increase in life expectancy is another reason there is support for changing the retirement age.  When Social Security was introduced in 1940, it was determined that workers’ minds and bodies were worn out by the age of 65.

    At the time, the average life expectancy for women was 79.7 years for women and 77.7 for men. Women now live an average of 86.7 years and men to 84.3 years.

    Average Retirement Age is Climbing

    If people wait until 70 to retire, the Center for Retirement Research estimates that 85 percent of them will have money left when they die. That’s a 35 percent increase over the group that retires at 65.

    It appears more Americans are getting the message.

    The Social Security Administration says that the average retirement age for men was 63.7 in 2005, the lowest in history. It has climbed to 64.2 in 2012, the most recent year statistics are available. The percentage of men retiring at the age of 62 plunged from 50.2 percent in 2005 to 37.2 percent in 2012.

    The same is true for women. They retired at an average age of 63.6, lowest in history, in 2005 and have climbed to 64.0 since then. The percentage of women retiring at 62 has dropped from 54.3 percent in 2005 to 42.4 percent in 2012.

    Bill Fay

    Bill Fay is a journalism veteran with a nearly four-decade career in reporting and writing for daily newspapers, magazines and public officials. His focus at Debt.org is on frugal living, veterans' finances, retirement and tax advice. Bill can be reached at bfay@debt.org.

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