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Ready to retire at 70 -- or 84?

August 31, 2012

| Money Rates Columnist

While the National Retirement Risk Index (NRRI) published earlier this year by Boston College reported that the vast majority of Americans will be able to retire comfortably by age 70, a new analysis says that assumption is flawed.

The report, which the Employee Benefit Research Institute (EBRI) released this week, compares the NRRI predictions to the EBRI's own Retirement Security Projection Model. According to the EBRI, the NRRI methodology ignores important factors, and workers considered at-risk might actually have to work until age 84 to have the retirement funds they need.

Why the EBRI disagrees with the NRRI

The EBRI claims that the NRRI is based upon outdated wealth-to-income patterns. The NRRI used data from 1983-2007 Federal Reserve Surveys of Consumer Finances to form its projections, while the EBRI says its data have been updated based on recent trends in 401(k) and savings rates.

In addition, the NRRI and EBRI have different definitions of when a household will be ready for retirement. The EBRI says its retirement model takes additional measures to determine the amount of savings retirees will need to retire securely.

To make its calculations, the EBRI looked at factors related to:

  • Longevity
  • Investment risk
  • Possibility of catastrophic health care costs, such as nursing home care

The NRRI findings relied solely on replacement income figures to determine retirement readiness. That meant that once households reached a certain benchmark level to continue their standard of living, they were considered ready to retire for the purposes of the study.

When will you be able to retire?

The EBRI report looked at the findings of the NRRI against its own as they related to households who were between the ages 50-59 in 2007. The report then compared the percentage of households that will be able to retire at different ages according to each model.

The NRRI came to these conclusions:

The EBRI came back with different findings, particularly in regard to Americans' readiness to retire at age 70:

  • 52 percent of households will be ready to retire by age 65
  • 64 percent of households will be ready to retire by age 70
  • Households with pre-retirement income in the lowest quartile will have to work until age 84 before 90 percent of these households have a 50 percent probability of success

When the EBRI adjusted its data to eliminate calculations for health-care costs, it said its projections came more in line with the NRRI projections.

"It would be comforting from a public policy standpoint to assume that merely working to age 70 would be a
panacea to the significant challenges of assuring retirement income adequacy," said Jack VanDerhei, EBRI reearch director and author of the study, in a statement. "But this may be a particularly risky
strategy, especially for the vulnerable group of low-income workers."

The EBRI report also says that those who continue working and are enrolled in a defined compensation program at age 65 are more likely to be able to retire earlier.

The competing findings highlighted by the NRRI and the EBRI highlight the difficulty that today's workers face in determining when they should expect to retire. Perhaps the best advice for these workers may be to take these broader predictions with a grain of salt and to focus instead on their individual retirement savings situation.

Your responses to ‘Ready to retire at 70 -- or 84?’

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21 September 2012 at 8:40 am

Yeah, 84 sounds about like my scheduled retirement age. Especially considering my family has tended to die at age 79... A friend once referred to his retirement plan as the"Stop Breathing Retirement Plan". When he permanently stops breathing, he can retire. I might be on that one, or perhaps I'll have to make sure whatever teh last job anyone hires me for is in the south, so when I'm living in a cardboard box on a street corner I won't have to sleep in the snow.

William Hebestreit

7 September 2012 at 12:15 pm

I retired at age 55. We raised 5 kids and still had one at home when I retired. The secret is planning. Once I turned 40 I put every salary raise into savings and did not bring the money home. We lived fine on the take home. I retired early and expected to live longer because I was out of the “rat race”. I am now 85 so I guess it worked. We normally drove used cars and bought only 3 new cars between age 40 and retirement. We built our retirement home “out of pocket” and have no mortgage but my advice is don’t build a 2 story retirement home. We did not live like hermits. We bought a motor home while the kids were still young and traveled to 31 states. After I retired I opened up a small aircraft repair business which I operated for 10 years. I set my rates just high enough to cover expenses and a little left over for beer and hobbies. We had health insurance when I retired and now more than half of my retirement pay goes to cover my share of the insurance. One has to consider inflation and the government propensity to spend more than we have when deciding how much savings you need to retire. I repeat, you need a plan and you have to start saving early.


7 September 2012 at 6:08 am

Retirement? What's that? Oh, that's that thing that our parents and grandparents did, back in the day, when they turned 65. I'm in my late 40's and I plan to work until I drop dead one day. Research has proven beyond most doubt that the longer people work, the longer they live. A perfect example would be my father - retired at 65; dropped dead at 72. Not that I could afford to 'retire' even if I wanted to but, I think retirement at 65 is an antiquated concept if one is still mentally and physically capable of working and enjoys the work they do.

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