The reluctancy to retire is a seemingly new trend among baby boomers. So why are they refusing to leave the workforce?
An alarming number of baby boomers are refusing to leave the workforce; which could have an impact on everyone in younger generations wanting to replace them. Unfortunately there is no solid evidence exactly why, this is due to the Labor Department not asking people the reason they are still working, only whether they are.
Here are some statistics:
- As of May this year (2018), 19.8% of Americans age 65+ told the government they were still working.
- The participation rate of those older than 65 was only 10.8% in the summer of 1986. And for decades, the figures stood at around those levels.
- By 2020, the Labor Department forecasts that 25% of the labor force will consist of workers ages 55 and older, which is up from about 13 percent in 2000.
The Reasoning Behind the Trend
Although there is no conclusive proof of why people are working longer, there are a few seemingly obvious reasons… One factor might be that interest rates have been low for so long that savings aren’t generating enough income for potential retirees. A recent study from the National Institute on Retirement Security found that the median savings among all American workers, not just those with a retirement account, was $0. Nearly 60% of working-age individuals don’t own a retirement account.
The number of employer-sponsored plans has also declined which is the most important vehicle for providing retirement income to older individuals after Social Security.
People are healthier these days and see themselves living longer, which might make them think there is still plenty of time to putter around in the garden or play with the grand-kids so work further into their lives. Working longer can also lead to higher Social Security benefits. Waiting until “full retirement age” (70) to claim Social Security will result in larger checks.
Benefits of Delaying Retirement
You don’t have to postpone retirement for long to reap the benefits. In fact, delaying retirement by up to 6 months is equivalent to saving an additional 1% over 30 years, according to researchers at Stanford University, George Mason University. Other benefits of working longer include:
- You can save for longer
Once you’re 50 or older, you’re eligible to invest more each year in both your 401(k) and your individual retirement accounts. These extra “catch-up” contributions increase your maximum 401(k) contributions by $6,000 and your maximum IRA contribution by $1,000. This means you’re allowed to invest up to $24,000 in your 401(k) and $6,500 in your IRA, for a total of $30,500 in tax-free investing.
Saving longer also means another year of compound interest earned on your invested funds. If you have a $350,000 nest egg and earn 6%, you’ll have another $21,000 in gains if you wait another year before retiring and starting to draw down your money — and that’s assuming you don’t contribute anything during that last year. Delay for five years, and the difference is staggering: Your $350,000 savings will grow to more than $468,000.
- You can reap the employee benefits longer
One of the best reasons for delaying retirement is the chance to continue getting benefits through your employer. If your employer provides access to group health-insurance coverage, replicating this coverage could be expensive on the open market. Be sure to understand exactly what benefits you give up by leaving the workforce and comparison-shop on the open market to find out if you can replicate those benefits without breaking the bank.
- Wage increases
As the number of older workers in the labor force increases, so do their wages. Data from the U.S. Census Bureau showed that between 1994 and 2005, average monthly wages for those over 65 increased by 80 percent, to $4,092. That far outpaced any other age demographic. Pew Research Center found those working past 65 were more likely to work in positions in sales, legal, education, business and financial operations than food services, construction or computer and math jobs.
- Personal Gains
Financial benefits aside, keeping your mind active and staying engaged is a huge plus for many baby boomers.
One study published in the Journal of Epidemiology and Community Health found that working for one additional year after age 65 was associated with an 11% lower risk of mortality, leading researchers to suggest that “prolonged working life may provide survival benefits among US adults.” Research also suggests a job you don’t like can still be better than no job at all. “Even disliked colleagues and a bad boss are better than social isolation because they can provide cognitive challenges that keep the mind active and healthy,” according to an article published by the National Bureau of Economic Research.
People are living longer, which means they need to save more for their retirement years. Before you decide to retire, make sure your financial life is in order and that you have a plan for how to stay healthy, active, and connected to your community.
Is the thought of retiring keeping you up at night? Are you worried you’re not financially prepared and don’t know where to turn? It’s time to consider placing your trust in a retirement income expert at CKS Summit Group. We design, build, and manage custom retirement portfolios that are fully capable of simultaneously generating stable growth, increasing income, and preservation of principal throughout a client’s lifetime, with only limited downside market risk.
So if you’re uncertain how to make your money go the extra mile, schedule your complimentary strategy session with us here. In today′s world, the importance of a well-executed retirement plan cannot be underestimated.