When Retirement Means More Work

Deciding when to exit the workforce may be your most important retirement decision

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After a 34-year career as a public elementary school teacher, my mother will hang up her erasers at the end of the academic year in June. By handing the superintendent a simple, one-page, typed note, Jean Brandon effectively made her most important retirement decision: when to retire.

I asked her why she decided to retire this year, when 401(k) balances—including hers—are falling through the floor. Why not last year or next year? “The whole time you were growing up, I always had to bring work home and give attention to lots of children,” she says. “I want to be able to do the things I haven’t been able to do because I was so busy working.” It’s a common reason to retire. Less common is that my mother is fortunate enough to get a pension and retiree health insurance until Medicare kicks in when she’s 65. Workers without these two valuable benefits often need to work until they qualify for Social Security and Medicare.And given that the stock market fell 56 percent between Sept. 30, 2007, and March 6, 2009 (causing a $3.4 trillion drop in retirement account balances), baby boomers are facing increased pressure to work longer. That’s especially true for those who have only a 401(k) or an IRA retirement plan.

Even before the recession began, Americans should have been considering the possibility that they might have to work past the average retirement age of 63. Longer life expectancies mean you will need more dough for retirement. And now, it will take the typical 55-year-old employee two extra years in the workforce simply to recoup 2008’s market losses, according to the consulting firm Hewitt Associates. Other studies have come up with similar numbers. The Employee Benefit Research Institute calculated that employees with between 20 and 29 years on the job will have to work an extra year and 10 months to neutralize retirement account losses. If workers panic and pull their remaining cash out of the market, it will take even longer for them to recover: two years and four months, according to EBRI. Continued employment allows seniors to save more and reduce the number of years over which their savings must be spread.

There are also valuable increases in Social Security check amounts for each year a worker delays claiming Social Security between ages 62 and 70. Social Security is calculated based on your 35 highest earning years in the workforce. Each year you work in your 60s replaces a lower earnings year from your 20s in the calculation, assuming you make more money now than you did in your 20s. Benefit payouts further increase by approximately 7 to 8 percent for each year you delay claiming between ages 62 and 70. Maximizing your initial Social Security payment will also increase the dollar amount of your annual cost-of-living increases.

It’s also often worth it to try to keep your employer-sponsored health insurance until Medicare eligibility kicks in at 65. Less than a third of large companies provided retiree health benefits in 2008, according to a Kaiser Family Foundation survey, and only 4 percent of small firms offer them. The average cost of premiums for retirees under age 65 with employer-provided coverage is $13,308 a year, according to a Towers Perrin survey. Those without employer-subsidized plans will generally pay even more, especially if they have health problems. That’s if they can even get coverage. But not everyone gets to choose his or her retirement date. Retirement is also something that can happen while you’re making other plans. Far too many Americans find themselves unexpectedly retired because of job loss, health problems, or the need to care for frail relatives. These forced retirees often struggle to find new employment that pays somewhere near their former salary. The unemployment rate for adults age 65 and older was 6.8 percent in February 2009, the highest level ever recorded. Some people eventually call themselves retired simply because they have given up on finding a new job.

Retirement offers the possibility of waking up to days that can be filled however you wish, but it also means you’ll be permanently separated from the income that has sustained you since you struck out on your own. Although working during the traditional retirement years doesn’t sound like much fun, an income stream provides a valuable sense of security that can be lost when you leave the workforce. Even a pension and health insurance have not freed my mother of her money worries. “I have moments of thinking, ‘What the hell have I done?’ ” she says. “I haven’t been able to sleep at night because I am afraid that I won’t have enough money to live and because I haven’t paid off my mortgage.”

So she will teach summer school and substitute teach for a few years—in other words, the fun stuff without the paperwork. See, work in the retirement years doesn’t have to feel like work.