Retire at 70? Maybe not

CHICAGO (10/9/12)--Are you expecting to work an extra five years, say to age 70 instead of 65, so you can afford to retire? According to recent data from the Employee Benefit Research Institute (EBRI), this could be a dicey strategy (Chicago Tribune Sept. 28).
Using data from millions of 401(k) participants and incorporating factors such as longevity, investment risk, and potential catastrophic health care costs, EBRI examined whether working five years beyond age 65 actually would help Americans reach their retirement goals.

EBRI found that those in the lowest income brackets would have to work to age 84 to have a 50% chance of meeting their retirement goals. Only those in the highest income brackets would have the same probability of meeting their goals and retiring at age 65.

The report doesn't mean you should abandon the idea of working longer. In addition to the beneficial social effects, every year you work gives you the opportunity to continue saving, allow your retirement funds to grow and delay taking Social Security, thereby increasing the size of your benefit. But what if you lose your job or have a catastrophic health event?
Take a diversified approach to assure your retirement income will let you live the lifestyle you desire. This means save more, spend less, create income, and be sure to include health-care insurance costs in your plans.

Save more:

  • If you don't have a budget, create one. If you already have a budget, revise it to reflect your serious commitment to saving.
  • Contribute to retirement accounts such as individual retirement accounts (IRAs) and 401(k)s. If you have an employer match, make sure you meet it. Ask your financial adviser for help with asset allocation--it will have a big impact on your long-term returns.
  • Devise a withdrawal strategy. Work with your financial adviser to make sure you withdraw from taxable and tax-deferred accounts in a way that makes your money last as long as possible.
Spend less:
  • Reduce or eliminate any high-interest debt. Prime example: credit card debt.
  • Alter your lifestyle. If today's lifestyle includes expensive vacations far from home, look local for satisfying, affordable getaways.
  • Downsize. Reduce housing costs by moving to a more affordable home and/or community.
Create income:
  • Stay at your job if you are able. Even part-time work will help you meet expenses.
  • Start a small business. Network with seniors to get ideas and support.
  • Take in housemates. Family members may also provide mutually beneficial living arrangements.
  • Find out if a reverse mortgage could benefit you.
Include health-care insurance costs:
  • Procure private health insurance or Medicare. Sign up for Medicare on time to avoid a premium hike.
  • Plan for chronic illness. Investigate the pros and cons of signing up for long-term care insurance.
EBRI's website, Choose to Save, offers a simple, two-page calculator that helps you quickly identify the ballpark amount you need to save to fund a comfortable retirement. If you've already used other calculators, this one provides a new slant on the numbers.

For more retirement information, read "Four Key Steps to 'No Regrets' Retirement" in the Home & Family Finance Resource Center.


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