Is There A Perfect Retirement Age?

Andrew Deen  |

65 years old is no longer the traditional retirement age. As of 2010, most Americans plan to work through their retirement years. The number of workers who decide to stay on the job increases as time goes on and expenses rise. Today, more than a third of workers plan to remain employed past the government designated retirement age, and only a quarter of employees aim to leave their posts at the age of 65.

Despite this trend, younger workers still plan to finish their careers at normal retirement age. Workers believe that they will work past the retirement age at a steadily declining rate that diminishes as their age decreases. Analysts contribute this characteristic to the fact that older potential retirees aren’t happy with the numbers they come up with when evaluating their options. Based on the funds available in retirement savings, such as social security benefits and 401(k) investments, their available funds most likely will not cover their costs of living, medical expenses and necessities such as food and shelter.

Today’s workers are finding that retirement at the age of 65 is not as realistic as it was for their predecessors 30 to 40 years ago. In some cases, however, such as in the nursing where practitioners are wary of working heavy caseloads and long shifts, employers are experiencing a talent shortage brought on by higher service demand and skilled staff members retiring from the ranks.

Planning for the Next Stage

Everyone wishes to retire at some point. Despite this, many individuals fail to plan for this important stage of life. This is especially true among younger workers who feel as though they have plenty of time to think about retirement later. In reality, it’s better to start planning for retirement as soon as entering the workforce. The earlier an individual starts to save for their golden years, the more likely they will retire in comfort.

In modern society, people live longer, the retirement pool is bigger and the number of workers that contribute to taxes is shrinking, reducing the viability of social security disbursements as a satisfactory resource for retirement income. This makes it more important than ever to start saving for retirement early and take advantage of capital gains earned from compound interest. Even a relatively small 10-year window makes a big difference in savings accumulation when considering compound interest earnings and savings. A 401(k) savings account is one such vehicle, where employers may greatly enhance individual retirement earnings by matching a percentage of worker contributions. Employees deposit funds into a 401(k) account after taxes, but can withdraw their funds free of taxes after retirement age.

55 Is the New 65

While this sentiment is amusing, it actually holds some truth. Today, a 65 year-old has the same life expectancy as a 55 year-old nearly 75 years ago. Choosing to retire is a life altering decision. Potential retirees must make careful calculations before deciding to leave the workforce. A worker who wants to retire at the age of 55 has different factors to consider compared to someone who plans to work until they reach the age of 70. For example, those choosing to retire at a younger age typically make concessions, such as living on a tight budget or selling assets. With sufficient savings, this outcome is feasible. One way to retire earlier is take advantage of a 401(k)-savings account, which comes with a special provision that allows for tax-free access to funds if the employee retires after the age of 55.

The U.S. Census Bureau reports that many workers retire around the age of 62. This makes sense, as this is the age that workers can legally supplement savings with social security income. For most, 65 years old is a more sensible retirement age, because citizens can secure Medicare benefits at this time and withdraw funds from retirement accounts without penalty. However, individuals that remain in the workforce until the age of 70 can earn the maximum allowed amount of Social Security benefits. Additionally, some financial retirement instruments provide better results for those that wait to withdraw funds. Although, a specific financial instrument called an IRA account penalizes those who do not withdraw funds by a certain age, so individuals who’ve reached the age of 70 ½ must remember to start using the account at that time.

Is It Really Time to Retire?

Retirement is about more than money. Employees who are leaving the workforce must also consider what they’re going to do with their newfound leisure time. Boredom is not a pleasant outcome for retirement. For many, the amount of savings they’ve accumulated will determine their activities and retirement age. Retirees should plan to live off 80-percent of their regular income to maintain their current lifestyle. As a rule of thumb, retirees should only withdraw 4-percent at a time out of their nest eggs to make their funds last sufficiently.

Health is also a contributing factor to retirement age for some workers. A poll conducted by the Employee Benefit Research Institute (EBRI) reported that nearly 50-percent of workers retired earlier than expected due to health concerns. It’s important that workers think about the impact that extending their careers will have on their bodies. Savings, assets and health conditions all factor into deciding which age that individuals can choose to retire. The earlier that individuals start to plan and save for retirement, the more likely it is that they will enjoy their time after life in the workforce.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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