Is 70 the new magic number for retirement?
July 13, 2012
Early retirement is a financially sound choice for only 30 percent of 62-year-olds, according to a new analysis conducted by the Center for Retirement Research at Boston College. But that doesn't mean older workers will need to work indefinitely.
Researchers reviewed income and expected expenses to calculate when households would be able to retire between the ages of 50 and 90. The study found that while not everyone will be ready to retire at 66 or younger, an overwhelming majority will be ready for retirement by age 70.
Working slightly longer goes a long way
While the news isn't good for those wishing to retire early, the percent of those financially ready to retire goes up steadily with age.
At age 62, the earliest a senior can begin collecting Social Security benefits, only three in 10 workers will have enough income to maintain their pre-retirement standard of living. Even among high-income households, only 38 percent will be prepared to retire at this age. Of workers able to retire early, 60 percent have a defined benefit plan, such as a traditional pension.
However, by age 66, which is considered the full retirement age by Social Security, the number jumps to just more than half of all households. At age 70, researchers calculate 85 percent of workers will be able to comfortably retire.
According to the report, the findings point to the significance of Social Security benefits as a substantial source of income for retirees. Under current policies, Social Security benefits can be increased for each year an individual delays retirement, up to age 70.
Adjusting the National Retirement Risk Index
The Boston College researchers completed their analysis by adjusting the National Retirement Risk Index. This index calculates the number of households who are at risk for being unable to maintain their pre-retirement standard of living once they stop working.
The National Retirement Risk Index indicates 51 percent of American households are considered at risk. However, the numbers are calculated based upon individuals retiring at age 65. The Boston College analysis used a variation of the index to determine how much longer most households would have to work before being financially ready for retirement.
According to the findings, Americans can rest assured that working into one's 80s or 90s is not a financial necessity for most people. Instead, for those unable to retire at age 65, most will be able to stop working in less than seven years:
- 1-3 years: 23 percent
- 4-6 years: 17 percent
- 7+ years: 9 percent
Only 2.8 percent of those sampled would not be able to retire by age 90.
While early retirement may be out of the picture for many households, the Boston College report runs contrary to a growing chorus that suggests many seniors will always have to work to pay the bills. The researchers note that, in addition to having their Social Security benefits increase with age, many seniors in retirement may have fewer expenses, such as lower debt payments and lower taxes, which can result in needing less income to maintain a pre-retirement quality of living.