Working Late

For the baby boom generation, 70 is the new 60.

That’s not only because baby boomers are living longer than previous generations, but because they’re working longer.

During the most recent quarter, 19% of Americans aged 70 to 74 were working, up from 11% in 1994. For those aged 65 to 69, 32% were employed, up from just 22% in 1994, according to the latest jobs report from the U.S. Bureau of Labor Statistics (BLS).

The BLS expects this trend to continue and predicts 36% of those 65 to 69 will be working in 2024.

Considering the population as a whole, the jobs report found that almost 19% of people 65 or older were working at least part-time in the second quarter of 2017. That is the highest percentage of retirement-age workers recorded in 55 years, according to Bloomberg, which noted that at that time American retirees didn’t have the healthcare benefits they have today.

Social Security was created in 1935 and Medicare was added in 1965.

Why Seniors Are Working

Many Americans are continuing to work past age 65 because they are healthy and can still work, they enjoy their jobs or they want to remain active.

But, as Bloomberg reported, “Others need the money. The longer you work, the easier it is to afford a comfortable retirement. Longer lives and rising health care costs have made retirement more expensive at the same time that stagnant wages and the decline of the traditional pension have made it harder to save enough.”

Boomer Wealth Transfer

Not long ago, many were predicting that baby boomers would be able to retire with tremendous wealth. MIT economist Lester Thurow, for example, predicted that America’s baby boomers would inherit more than $14 trillion.

While that may well be the greatest wealth transfer in history, as was widely reported 15 years ago, with 77 million boomers it comes to less than $182,000 per person. While $364,000 for a couple would be a great contribution toward retirement, today’s retiring boomers are confronting far more expenses than previous generations.

As we’ve previously noted, Social Security and Medicare are both going broke, so retiring boomers will likely pay more and receive less from both than they expect.

Meanwhile, as Americans live longer, they will need to stretch their retirement savings over a longer period and will in many cases have to pay for long-term care. A 2016 survey by John Hancock found that the average cost of a private room in a long-term care facility is $102, 930. In a separate survey, Genworth found that the average cost of a nursing home nationally is $91,250 a year, but in Massachusetts, the average cost is $139,580.

As baby boomers drive demand for nursing home care, the cost is likely to rise much higher.

Little Savings for Retirement

While expenses will be high for retiring boomers, their retirement savings will also have to last longer than they have for previous generations. While it used to be common for Americans to retire at 65 and live to 70, today many Americans are living for 20 years or longer as retirees.

To cover 20 years of retirement, those preparing for retirement should ideally have seven-figure portfolios. Yet few have saved adequately and invested wisely.

As we recently reported, the mean average amount saved for retirement by all working-age families in the U.S. is just $95,776. The Economic Policy Institute reported that the median average is just $5,000.

Ben Stein, the economist and humorist, studied retirement savings among baby boomers and found that the average amount saved is just $50,000 or $110,000 if you include the equity in their homes.

Similarly, a survey by PWC found that about half of all baby boomers have set aside only $100,000 or less.

What to Do

So what can you do to avoid working in your 70s? Start with a careful review of your financial situation, looking at what you’re spending, what you’re earning and what you’re saving.

Pay off your debts. According to NerdWallet, the average U.S. household is carrying $16,425 in credit card debt. Add in student loans, auto loans and mortgages and the average household debt totals $135,924.

Even with today’s low interest rates, you’ll end up paying much more than you owe if you fail to pay off your debts. Pay off your credit cards every month, rather than paying the minimum.

Don’t spend what you don’t have. It’s human nature to buy things when you want them, but chances are you can cut your expenses back and pay off your debts. You don’t need to go out to expensive restaurants, drive a fancy car, buy the best clothes and take exotic vacations. Stick to what you can’t afford. Maybe it’s time for a staycation.

Save more. Once you’ve become accustomed to living frugally, don’t stop when you’ve paid off your debt. Instead, put the money toward your savings. If you invest wisely, your savings will grow and you’ll be able to enjoy retirement.

Scale back your plans. Americans today have more wealth than anyone in history, but we take it for granted. If we had to, we could get by without owning two homes, cars for every member of the family and the latest electronic gadgets. Just ask Alexa.

Consider other sources of income. Those who are in severe financial straits may consider other options, such as a reverse mortgage, which can provide a lump-sum payment for the equity in your home with certain restrictions, or a life settlement, which can provide funds in exchange for the death benefit on your life insurance. These measures should be considered only for the truly desperate, as they involve high fees and will leave you with virtually no assets to pass on to your heirs.

Don’t quit yet. Many people quit working at 62 when they become eligible for Social Security benefits. But working even a few more years can increase your Social Security benefits, result in more retirement plan contributions and reduce the time period during which you will be living off of your retirement savings.

The full benefit age for Social Security is 66 for people born between 1943 and 1954, and it will gradually rise to 67 for those born in 1960 or later.

By delaying your Social Security benefits beyond your eligibility age, you can receive an additional 8% benefit for each year you delay, but of course you will receive benefits for a shorter period as a result.

Consider distributions and taxes carefully.  Retirees typically rely on a variety of sources of income, including retirement plans, Social Security, IRAs and personal savings. The order in which you withdraw money from these sources can have a major impact on your taxes and ongoing returns. With careful planning, you can make your retirement savings last longer.

If you have assets in tax-exempt accounts, such as Roth IRAs, you can use income from those accounts to lower your overall taxable income.  By doing so, you may be able to stay in a lower tax bracket.

Be certain to see a tax professional before settling on a distribution strategy.

Enjoy your retirement. Everyone has different needs during retirement. Whether you expect to travel the world or spend more time with your grandchildren, be sure to plan accordingly. You may even end up saving more for retirement than you needed. That wouldn’t be such a bad thing, would it?

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