Workers Choose Delayed Retirement Over Saving More

Those unsuccessful at either strategy will have to consume less in retirement

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Workers who haven’t saved enough to retire generally have three choices: save more, work longer, or consume less in retirement. Given these three potential solutions, employees generally seem more willing to delay retirement than to cut their current expenses and save more, according to a recently released Center for Retirement Research at Boston College survey of workers age 45 to 59.

[See Financial Planners Offer 2010 Investment Advice.]

“The main results, which are largely consistent with earlier studies, show a significant rise in expected retirement ages, but little change in retirement saving,” write Steven Sass, Courtney Monk, and Kelly Haverstick of Boston College. About 40 percent of those approaching retirement age expect to retire later than they did before the downturn. Most of these workers expect to delay retirement by four or more years. But few workers say they are willing to save more. Two-thirds of the survey respondents say they have not changed how much they are saving for retirement in 401(k)s, IRAs, and other accounts. The age of the investor also played a role. Those planning to retire within five years were more likely to work longer and save more than individuals whose remaining working life exceeds 15 years.

[See 10 Ways Baby Boomers Will Reinvent Retirement.]

But workers don’t always get to choose their own retirement date. Layoffs, buyouts, and health problems often push employees into early retirement. “The intent to work longer is potentially a powerful response to the loss of retirement wealth, but many workers retire earlier than planned,” caution the researchers. “Increased saving is a more certain and immediate response to a large negative wealth shock.”

[See 6 Ways Employers Will Change 401(k)s in 2010.]

Another way to increase your chances of a successful retirement is to cut expenses and pay down debts so you can get by on less in retirement. Nearly 60 percent of the 1,317 survey respondents said they have recently taken steps to spend less. The researchers note: “While contributions to retirement savings plans are little changed, workers approaching retirement are spending less and paying down debt, which strengthens their financial position and results in a less costly standard of living that will be easier to sustain in retirement.”

Tell us, would you rather work longer or save more now for retirement?