Working Longer—The Best Way to Afford Retirement

I think I can confidently predict one trend in the year ahead: More and more people will consider working longer than they previously expected to.

Even before the current financial disaster, there were reasons for delaying retirement. But if you weren’t thinking about it before, odds are you are now when you look at the balance in your retirement plan.

That’s what happened to Dorothy L. Kostriken, a psychotherapist in private practice in Arcata, Calif. Before the economy started sinking, Kostriken, 74, was thinking about reducing her practice this year, with an eye toward possibly phasing it out next year. “When I look at my savings, much of which is in the stock market, it’s probably down about 40 percent. That really doesn’t make me comfortable thinking about retirement,” she says.

With the Dow Jones Industrial Average down 34 percent, the S&P 500 down 38 percent and Nasdaq down 41 percent at the end of 2008, there’s a lot of that going around. I’ve always figured I would work until at least 70. That’s seven years off, but now I’m wondering if that’s enough time for my savings to recover.

Actually, those of us who are looking only at lost value in investments are among the lucky ones. Others have lost company matches to their retirement accounts or stopped saving because of financial pressure. Still others have had to take loans or hardship withdrawals from their retirement accounts. And of course, there are those who never had any retirement savings.

But it’s not just a bad economy that is driving the trend to work longer. With increased life expectancy, people are faced with more years to finance. I’m 32 years away from my mother’s current age of 95, which is a long time to stretch my savings. And fewer people retiring now have guaranteed lifetime pensions, so they depend on savings more.

Political and social events also are influencing how long people are working. Among them are changes to Social Security made in 1983, including raising the full eligibility age, according to a study by Alan Gustman and Thomas Steinmeier for the National Bureau of Economic Research. They found a 9 percent increase in full-time work by married men ages 65 to 67 between the years 1998 and 2004.

Also, in earlier generations fewer married women had full-time careers. If they worked, they often retired when their typically older husbands did, according to Richard W. Johnson, a senior research associate at the Urban Institute and a research associate at the Center for Retirement Research at Boston College. Now, because couples still often retire at the same time, husbands may be working longer, waiting for their wives to retire.

Michael Doshier, vice president for marketing for Fidelity Investments, says many savers are considering working longer than planned. Some in their late 50s or early 60s have discovered with the downturn that their risk tolerance wasn’t as great as their stock holdings suggested.

Younger investors have time for recovery—the average recession is about 11 months, and stocks usually start to recover before the end of the recession. Older investors will have to mull whether they have adequate sources of income outside their retirement savings plans—such as Social Security or traditional pensions—in order to retire. “Clearly, there are advantages to delaying retirement, whether the market is up or down,” says Doshier. “The most notable one is what the government pays in Social Security.” Delaying taking Social Security from when you are eligible for reduced benefits at age 62 until age 70 “almost doubles your income,” he says.