The ballooning national debt has stoked debate over raising the age for collecting Social Security without penalty. But if anyone was hoping 401(k)s could save the day for retirees, that’s rapidly being proven wishful thinking.
A recent study by actuarial and consulting firm Nyhart found that people relying on their 401(k) to cover their retirement expenses won’t be ready to stop work then. They’ll have to keep at it until 73, on average, to have a shot and not outliving their savings, based on Nyhart’s examination. And because they were not saving enough prior to the recession and then suffered significant losses in 2008, workers in their early 60s now will have to work to 75.
The study was based on a review of nearly 10,000 retirement accounts at 110 private and public companies.
One option for someone hoping to hang up their hat sooner, is to rev up their current savings. A lot. According to Nyhart:
- Employees above the age of 55 will need to contribute more than 45% of pay through the remainder of their career to retire by age 65.
- Employees age 45-55 must contribute 19% of pay to retire by 65.
The number of people 60 to 64 in the workforce is already at an all time record, reports USA Today. Some 55% of that cohort were reporting to the office in the first 11 months of this year, compared to 47% for the same stretch of 2000. 31% of people 65 to 69 are also working, up from 20% in 1980.
If these numbers motivate you to do a little calculating of your own financial situation, Geoff Considine recently reviewed a useful, free online retirement income calculator from T. Rowe Price.
But remember it’s important to be careful about the assumptions you make, particularly on your investment return. When Financial Geek used a different calculator to map out the savings required for a 35-year-old couple making $75,000 a year, with $50,000 in savings to retire at 65, he determined they’d need over $2.6 million in savings. If their portfolio averaged 6% returns over the next 30 years, they’d need to save more than 25% of their income for retirement, nearly $1,700 a month. But bump that return up to 8% and they’d only need to save $1,108 a month.
Working longer isn’t all bad, however. A report by Reuters on semi-retirement and working longer, outlines some real benefits to stretching out your career a few more years. For one thing, the stimulation of work can keep your mind agile longer. Maybe even more importantly, working longer keeps you eligible for employer health insurance.