I am several years away from retirement, and while I sometimes daydream about the day that I'll officially retire from the "rat race" (particularly on those long, tough days at the office) and trade my suit and tie for hunting gear, I recently learned that many Americans are delaying retirement. I found this surprising, so I sat down with Reuben Escobedo, Retirement Plan Specialist at SWBC, who has nearly 17 years of experience in the financial and retirement industry, to learn more about this trend and find out just why so many Americans are delaying their exit from the workforce.
According to the Pew Research Center, 9 million Americans 65 and older have full- or part-time jobs, an increase of 6% from 2000 to 2016. So, why are so many Americans delaying retirement? Well, several factors play a role including the economy, social security benefits, the desire to continue working, and access to health insurance.
One of the greatest factors for delaying retirement is the rise of average life expectancy. A 2013 Boston College's Center for Retirement Research found that on average, males and females are now living 3.8 years longer than they did in 1979. "It is becoming more and more common to see people working well into their 70’s, if not even further in age at times," said Escobedo. "McDonalds recently celebrated one of their cashiers who is 94 years old and has been working for them since 1973."
Let's break down a few factors that play a role in delaying retirement.
1. Economic Rough Patch
As with most things in life, it comes down to money. Nearly 10 years later, baby boomers are still reeling from the financial crisis, trying to make up lost ground in their retirement funds. A 2014 Federal Reserve study found that 38% of households either do not plan to retire or plan to keep working as long as possible, with the highest percentages of families making less than $40,000 a year, aligning with 29% of those surveyed who indicated they are unable to afford contributions to a retirement plan. When the economy takes a downturn, people become 'late savers' or 'those who cannot save enough.'
An employer not offering a retirement plan was the biggest reason why survey respondents didn't invest in their retirement. Historically, older baby boomers would work for the same company for decades. An Associated Press survey found 40% of boomers stayed with their employer for more than 20 years, though the trend was not the same for younger boomers ages 50 to 65. For the young boomer group, only a third had a pension plan.
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"Saving for retirement is a subject that I feel still is not talked about enough and because of the lack of discussion, there is a lack of those who are saving or adjusting what they are saving," said Escobedo. Those who start saving later in their working years are playing catch-up and those that do save never go back to reevaluate to ensure their goal is met. "In either case, this is the recipe for a shortfall when you reach the age you would like to retire," he said.
As a result, retirement-age employees feel that they have to continue working to build up their retirement accounts.
2. Maximizing Social Security
Choosing to work longer and delaying when you start receiving social security may impact your monthly income received from the entitlement. Technically, someone can begin claiming social security benefits at age 62, with full retirement at ages 66 to 67 (depending on birth year). By delaying receiving your benefit past full retirement age, social security monthly income could grow by 8% each year, up to age 70, the latest someone can claim the benefit.
3. The Workplace
Job satisfaction plays an important role for retirement-age workers wanting to stay in the workforce. More than a third of surveyed employees over 65 said they kept working because they wanted to stay engaged at work and/or enjoyed what they do. The social aspect of working is another reason individuals continue working. They like their co-workers and enjoy working alongside people they've come to know as family over the years.
For those that fall into the 'late saver' or 'not saving enough' category, continuing to work enables individuals to contribute regularly to a 401(k) or earn funds in a pension. And if you are age 50 or older you can make additional "catch-up" contributions, totaling $6,500 a year, according to the IRS.
"The good news is that regardless of when you start to save, you can still put some money aside to help you," said Escobedo.
4. Health Care Costs
As retirement-age individuals continue working, they maintain their access to health insurance, workplace wellness plans, and other health benefits. Retirees can purchase plans individually, but a corporate insurance plan is often the more cost-effective solution and generally has better coverage. While some may be working hard to stay healthy, things happen and the cost of those hospital and doctor visits and prescriptions are not manageable without insurance to help offset the cost.
"For those in their retirement years, some will go back to work to help offset the cost. For those nearing retirement, many will delay their retirement just to keep their health care coverage," said Escobedo.
As the baby boomer population aged, many analysts were concerned with the depletion of available workforce. However, data shows this population is working longer than ever with few workers planning to retire. For many, the benefits of working outweigh retirement life, and this is why boomers will continue to slip on their dress shoes instead of their house slippers in the morning.