Retirement: These May Be the “Good Old Days”
Inflation is up, the markets are down, and millions of Americans have, until recently, been forced to sit on the sidelines of the job market. Baby Boomers entering retirement today have it a lot tougher than their parents did, with their cushy pensions and cheap home prices—right?
Maybe not. A recent opinion piece in Bloomberg disputes this commonly-held view. It notes that for most of human history, people worked until they were physically unable, and then they spent the remainder of their lives either poor or dependent on family for food and shelter. This changed in the mid-20th century with Social Security and various pension programs, which created that purported golden age of retirement for the Greatest Generation during the 1960s and 1970s.
However, even at the peak utilization of defined benefit plans—which had mostly been replaced by defined contribution plans like 401(k) plans by the early 2000s—only about 38% of private sector workers were participating, and they tended to be the highest earners who had the least need for them. One report estimated that 57% of US workers have some form of retirement plan—and that may be a low estimate. A study by the National Bureau of Economic Research found that 56% of 65-year-olds, 65% of 70-year-olds, 69% of 75-year-olds, and 69% of 80-year-olds were receiving pension income from a defined benefit plan.
When you factor in all retirement accounts, pension plans, bank accounts, stock portfolios, and Social Security, IRS records show that people today have more or almost the same income as previous cohorts of retirees. Beyond that, there are many more opportunities for part-time work years into retirement for people who want to improve their financial situation after their careers have ended. If there is a golden age to retire, it might be now.
But that doesn’t mean it’s not a good idea to think of ways you can boost your retirement savings and income. In fact, a recent Boston College survey indicates a $7.1 trillion shortfall in retirement savings for US households; many who are now working could face the necessity of a reduced living standard when they retire, unless they take action.
One path for those in or nearing retirement could include continuing to work part-time or even full-time after retirement age. As mentioned above, many expect to continue working past full retirement age: about 92% of those 40 and older, according to an article in Business News Daily. Another strategy involves delaying Social Security benefits until age 70, when the monthly benefit reaches its maximum. Those additional years of full-time employment also cut down on how long you’ll need your money to last after you quit working.
For those still in or just after mid-career, of course, the obvious key is making more room in your budget for retirement savings plans like a 401(k), 403(b) (for nonprofit or educational workers), or IRA. Even if you’re in your early to mid-50s, you’ve got enough years for compounding and growth to work in your favor. Let’s say that all you can manage is funding your IRA each year and you obtain an average growth rate of 4% between now and retirement at age 65; that can add as much as $158,000 to your nest egg (this also includes the $1,000/year catch-up provision for persons age 50 and older, plus the maximum annual IRA contribution, which is currently $6,000).
Bernhardt Wealth Management is dedicated to helping clients make smart decisions about retirement savings and other important financial goals. To learn more about the importance of working with a fiduciary financial advisor, click here to read our recent Flash Report: “Finding Advisors Who Are Truly Client-Centric.”