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How to close the retirement gap

October 24, 2011

| MoneyRates.com Senior Financial Analyst, CFA

Americans are responding to the retirement savings crisis by resolving to work longer. This is a piece of the puzzle, but it isn't the whole picture.

A number of factors have created the shortfalls many Americans face in their retirement funds. Years of inadequate personal savings rates, stock market and real estate losses, and minuscule savings account interest rates have all taken their toll.

Working longer can be an especially powerful tool for restoring retirement savings, because it adds years of saving while subtracting years in retirement. A survey by the Transamerica Center for Retirement Studies suggests that Americans are embracing this solution. However, with so many factors contributing to retirement shortfalls, it may take more than one solution to fully address the problem.

Americans plan on working longer

Retiring early was the dream of many baby boomers, but working longer is turning out to be the reality.

Although the 2008 stock market collapse and a weak job market have hurt, it is worth noting that retirement planning was already on shaky ground before the financial crisis. According to the Transamerica survey, only 10 percent of American workers are now very confident in being able to retire comfortably. Back in 2007 this figure was only 13 percent, so even before stocks fell apart and savings account rates dropped near zero, years of inadequate retirement savings rates had already done a great deal of damage.

The Transamerica Center survey shows that Americans are coming to grips with this reality. Over the past year, some 40 percent of those surveyed have increased their planned retirement age. As things stand now, only 6 percent plan to retire in their 50s -- so much for the dream of early retirement.

Fifty-four percent still plan to retire in their 60s, which has been the traditional retirement expectation. However, 25 percent now plan to retire when they are past the age of 70, and 14 percent don't plan to retire at all. In total, that makes 39 percent of Americans who see themselves as potentially working when they are in their 70s.

It should be noted it's not a prolonged feeling of youthful vigor that is behind these later retirement dates. While 35 percent of those planning to work past retirement say they'll do it because they want to, a greater number expect to do it because they'll need to.

Why additional solutions are needed

While working longer can be a key component of your retirement planning solution, it is not a substitute for other elements of retirement planning, because you still face two crucial unknowns:

  1. You don't know how long health and economic conditions will allow you to work.
  2. You don't know how many years you will live, so you could still have a long retirement even after working beyond normal retirement age.

These realities underline the fact that retirement planning is made up of variables that you cannot completely control, which is why you shouldn't take too narrow an approach to retirement planning. You'll have a better chance of mastering the unknowns if you approach retirement planning comprehensively, through high savings rates, thoughtful investments, realistic planning, and yes--a willingness to work longer.


Your responses to ‘How to close the retirement gap’

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18 November 2012 at 8:24 am

I was "forced" to retire at 61-fired after many many years with the company and an excellent review only 90 days before-I had planned on working until at least 65-those plans are shot and so is the job market. They fail to discuss what happens with the unexpected and what that does for retirement planning. There are no real paying jobs out there for the 61 year old when there is a bucket load of those aged 30-40 looking----Jobs, it's about jobs---and there aren't enough. If we could all work like we want to, and for the years we would like, we wouldn't have the personal debt and wouldn't have to tap our IRA's, and wouldn't be taking SS at reduced rates--employment has forced many of us into this scenario. We should be discussing this.

Matthew Slovensky

16 June 2012 at 3:53 pm

I enjoyed the article on closing the "retirement gap". The author has a firm grasp on the major elements involved in additional solutions toward closing the retirement gap. I would add one more idea to the comprehensive list of recommendations. That is, learn to live on less than you make, and with each purchase as yourself " does what I am about to purchase line up with my core values, needs, and beliefs about money?

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