Many people who haven’t saved enough to retire plan to work past age 65. But some Americans will need to work long into their 70s or even 80s to close the gap between what they have and what they need to completely exit the workforce, according to a new Employee Benefit Research Institute study.
Deferring retirement by just 4 years can make a big impact on how prepared you will be for retirement. Some 38 percent of households earning between $11,701 and $31,200 who do not have sufficient savings to maintain their current standard of living after retirement at age 65 at least 50 percent of the time will be more likely to have enough if they keep working until age 69, EBRI found. Even more households with annual incomes between $32,201 to $72,000 (44 percent) will be able to sure up their retirement income needs by postponing retirement from 65 to 69.
But workers earning less than $11,700 each year, the lowest income quartile, will have to work much longer than that to boost their chances of a secure retirement. Just under a third (30 percent) of low income workers currently have sufficient resources to avoid running short of money in retirement 50 percent of the time. But the proportion of workers prepared for retirement increases to 35 percent if retirement is deferred until age 67 and 47 percent if retirement is delayed until 69. However, low income workers need to postpone retirement until age 75 before almost half (49 percent) have a shot at a financially secure retirement. And retirement needs to be delayed until age 84 before 90 percent of low income households would have a 50 percent probability of success.
Higher income households earning over $72,000 annually, which already have fairly good retirement prospects, can further improve their financial security by working a few more years. Some 89 percent of households with a pre-retirement income of over $72,000 already have at least a 50 percent probability of retirement success by age 65. This value increases to 95 percent if retirement is deferred until age 69.
However, a 50 percent chance of a secure retirement is still a pretty big risk that you will spend down your savings too soon. “The problem with using a 50 percent probability of success, of course, is that the household is in a position where they will run short of money in retirement one chance out of two,” according to the EBRI report. “While most households are likely to have a risk aversion level that would make this untenable, switching to a higher probability of success will significantly reduce the percentage of households capable of satisfying the threshold at any given retirement age.” Only 61 percent of households earning between $32,201 to $72,000 and 37 percent of those with incomes between $11,701 to $31,200 have enough resources to have a 70 percent chance of maintaining their current standard of living upon retirement at age 69.
The calculations assume that workers keep their existing jobs after age 64 and that their paychecks increase at the average national rate for wage growth. The study also assumes that workers continue to participate in a 401(k) at current rates of saving, that employer matching rates remain constant, and that workers sign up for Social Security upon retirement or age 70, whichever is earlier. But many workers will be unable to delay retirement due to health problems or layoffs. “Health problems of either the worker or the spouse may prevent this from happening or a suitable job for the worker’s skills may not be available,” according to the EBRI report. “Deferring retirement age will not always be feasible.”