The Social Security Administration's full retirement age is 65 for Americans born 1937 or earlier and incremental increases are already in place for citizens born later. For seniors born between 1943 and 1954, for instance, full benefits collection will begin at 66.
Still, these gradual increases may not reflect the ages at which people will actually stop working in the near future. “I truly believe there's going to be an increase in the average retirement age, and what I've seen in my own practice is that it's already happening,” said Annalee Leonard, Mainstay Financial Group Investment Advisor Representative. “A survey by the Associated Press even showed that 80 percent of Americans over 50 will have to continue working longer to provide for retirement, and that they'll have to find another job if they're retiring from their current job.” That same AP study indicated that 13 percent of Americans over 65 are working and not retired, and that eight percent are working in retirement.
Not surprisingly, an ongoing Gallup poll is showing gradual increases in both expected and actual retirement ages throughout the 2000s. From 2002 to 2014 the average expected retirement age among non-retirees rose from 63 to 66, and the average actual retirement age among retirees rose from 59 to 62. And, while that poll showed that the youngest Americans are the most likely to expect to retire before age 55, a majority of all age groups expects to retire at 65 or older.
While the trend seems to encompass a variety of demographics, people's reasons for working longer may vary. “The majority of people who have to work longer are blue collar, lower and middle class” said Jerry Linebaugh of the Linebaugh Group. “This group isn't saving anywhere near enough, and nobody's talking to them, burning their doors down and telling them the dangers they're in.”
Aside from a lack of savings, however, some seniors may just want to keep working to stay active. “I think a lot of people are still working because they want to. I'm one of them,” said Leonard. “Other people keep working because they want to keep their minds and bodies active and to make sure they continue to socialize.”
As for higher earners, “The closer you get to the top one percent, the more you see people working longer because of the sheer enjoyment of it,” said Linebaugh. “Still, even most of the upper middle class is going to have to work longer, even though they could live a comfortable lifestyle with less.” For people who've increased their spending as they've earned more throughout their lives, even a high income may not allow them to sustain their current lifestyles if they retire before 65.
As the trend toward long retirements and even longer careers continues, however, more Americans may be willing to downsize. “I think one of the main jobs financial advisors have is to make realistic plans for our clients,” said Leonard. “When I finally ask people that question of what they'd really need to live on if they retired tomorrow, I'm finding more and more people are coming back with realistic numbers.” Still, Leonard noted that younger clients are often less realistic about their expenses and future incomes, and that too few middle-aged workers are putting aside money for retirement and emergency expenses.
As for related regulatory changes, while the 401(k) and IRA contribution limits do increase in small increments each year – and although catch-up rules allow for greater contributions from soon-to-be retirees – those increases may have little effect on most people's retirements. “”You can tell people they'll be allowed to contribute more, much more even, but for people already putting in far less than the limit, that's not going to change much,” said Linebaugh. “Short of forcing people to save, I don't know how you'll change that.”
Still, between saving early, saving more and downsizing when necessary, not all seniors will have to retire later than they'd like. “I don't care how old you are, you should always have three basic buckets of money: emergency money, guaranteed money and inflationary money, ” advised Leonard. Diverse portfolios heavy on annuities and other lifelong income streams can go a long way in preventing clients from having to work longer they're willing or able.
Similarly, Linebaugh said the importance of avoiding equities-heavy portfolios. According to a 2011 Putnam Institute study, a stock allocation of as low as five percent was necessary to minimize retirement downside risk – a far cry from the 30s and 40s often recommended. “You'll risk running out of money because of market cycles if you have much more than that,” Linebaugh said.
Overall, whether a client ends up retiring early or working through his 70s, the most important thing to do is to plan ahead. “The biggest thing is you have to have a plan, and the sooner you make one, the better,” said Leonard. “Just working more isn't going to provide for retirement. You need to know how you're going to make your money, how you're going to take your money and what you're going to do in case of an emergency.”