Working Longer: Not the Best Retirement-Savings Plan


Thirteen percent of working adults think they will never be able to afford to retire, according to a new survey. What' more, on average, most of us figure we’ll work until age 68.

That’s not just depressing. It’s scary. Because it’s nearly a decade longer than the average age at which current retirees walked away from their jobs.

In other words, a large number of Americans are significantly overestimating how much time they have to financially prepare for retirement.

The Northwestern Mutual 2014 Planning and Progress Study, which queried more than 2,000 adults representing a weighted cross-section of the population by age, gender, race/ethnicity, education and income, finds that too many people are relying on staying in the workforce longer to help fund their retirement--and that doesn't always happen.

“We continue to be surprised and nervous from a planning angle because …there’s a disconnect between expectations about how long they will work,” says Rebekah Barsch, a vice president at Northwestern Mutual. Other organizations, such as the Employee Benefits Research Institute (EBRI) have found a similar pattern, with pre-retirees planning to remain in the workplace longer than current retirees say they actually did.

Out of Your Control

Life (and the economy) have a way of disrupting the best-laid plans. As Barsch points out, “Your 45-year-old body is saying, ‘I’m going to work until I’m 68.’ But your 60-year-old body is less likely to feel that way.” In addition to physical issues that crop up with age, business and economic conditions can derail intentions to keep working.

If you were among the millions laid off in the recent “Great Recession” and age 55 or older, you had a high probability of not finding re-employment. (This was one of the factors that caused Social Security’s long-term financial outlook to deteriorate.) The desire to spend more time with family- due to the arrival of grandchildren or the failing health of your spouse- can also result in retiring sooner than originally planned.

The point is, there is a very high probability you will not defy the odds and that, for one reason or another, you have less time to work and save than you think you do. “From a planning perspective,” says Barsch, “It tells us that when figuring their retirement income, consumers are factoring in more [savings] than they are actually going to have. It means they are going to have to scale back their retirement.”

A better approach, suggests Barsch, is to save as if you plan to retire at age 59. “This gives you the flexibility but not the necessity to work longer.” If you can meet your nest egg goal sooner, every additional year of work and retirement savings provides extra an extra cushion of financial security.(1)

Younger Boomers in La-La Land

Barsch is most concerned about those age 40-59, i.e. the second half of the baby boomer generation. This age group is the least disciplined and least interested in planning for retirement, according to the survey, citing such factors as lack of time, having too many distractions and the complexity involved in creating a nest egg.  Rather than be a source of helpful information, the internet appears to have caused information overload for many, leading to paralysis.

Though the majority admit their financial planning could use improvement, the survey shows, more than half describe themselves as “informal” planners or someone who has no retirement plan at all. “That’s not a great place to be, particularly when so much of your financial future- except for Social Security- is your own responsibility. It’s a big concern.”

Guess Who’s Better at Saving?

The impact of the recent financial crisis had “an amazing” impact on today’s young adults, according to Barsch. “The generation that just watched their parents go thru the economic crisis are better planners than younger baby boomers.” Millennials are also more likely to describe themselves as “disciplined” in their approach to financial planning.

Given their age, millennials are also surprisingly conservative when it comes to their financial planning. One-third favor a “slow and steady” approach over being gung-ho risk-takers, according to Barsch.  “They understand that risk management is an important part of a financial plan.” This does not just pertain to investment choices.  Having witnessed the unpredictability of the economy, millennials also appreciate the need to insure against the risk of losing your job or becoming sick and unable to work.

It’s Never Too Late

Whether you are in your 20s or 50s, if projecting expenses and determining asset allocations and insurance coverage isn’t your idea of how to spend a fun weekend, find a professional advisor who will do the work for you.

“Give yourself the gift of confidence and make a plan for how you will finance your retirement, so it doesn’t become a roll of the dice," says Barsch.

1. According to Barsch, 59 was a common age for retiring even before high unemployment caused by the financial crisis of 2008 caused millions to lose their jobs. If leaving the workplace at this age is really your goal, you need to ask yourself several critical questions: 1) Where will your income come from? Since you will not be eligible for (reduced) Social Security for 3 more years, you will have to start drawing down on your retirement savings sooner. 2) What if you or your spouse get sick? You will have to buy private health insurance until you reach age 65 and are eligible for Medicare. 3) Most financial professional advise planning for a 30-year retirement. Retiring “early” means you should increase your savings goal so that you will have enough for a 35-year retirement.