Seventy percent of US workers would like to stay at work as long as possible, according to a recent Bankrate survey. The fact is, many workers see late retirement as a way to solve their pension savings shortage.
They plan to continue working because they need the income and the health benefits. US workers fear they will outlive their retirement savings otherwise. And that social security payments will diminish or end.
According to the 17th Annual Transamerica Retirement Survey of Workers, most baby boomers put away 10% of their salary for retirement. Yet the average retirement savings fund is only US$147,000. With a life expectancy of 25 years after retirement, US$147,000 accounts for US$5,880 per year. That amount is nowhere near enough to survive on.
The amount is so low because the country’s 401(k) pension plan system came into play in the middle of the baby boomers’ working lives.
And because the global financial crisis hit baby boomers hard in 2008, more than half of them have not yet recovered financially. And unlike younger generations, they have less time to recover before retirement.
That is why they expect to rely on social security more than any other generation. But the fate of the social security system keeps 77% of baby boomers awake at night.
As a result, half of them expect their standard of living to decrease when they retire.
And according to the survey, their pressing concern is not only to save for retirement, but to pay off debt. Thirty-three percent have already taken funds from their pension plan to pay for rising living costs and/or to prevent getting evicted from their home.
More than one in four US workers have less than US$5,000 to cover the cost of an emergency. They cannot afford a financial setback such as unemployment, a medical bill or car repairs.
So saving for retirement is taking second priority.
Workers in the survey estimated they need US$500,000 for their retirement. Yet most of them admitted they had not done any maths to arrive at this figure; they were just guessing.
That’s why many workers no longer expect to transition straight into retirement. Instead of stopping work altogether, they are looking to scale down to part-time work before retiring.
But there is a gap between workers who want to work past retirement and those who actually do.
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Working Past Retirement Age
According to research by the Employee Benefit Research Institute (EBRI), 67% of US workers think they will work after they retire. In reality, only 27% do.
Many workers have to retire before they are ready, due to declining health or lack of job opportunities.
Research by EBRI found almost half of workers retired earlier than they had planned.
And even though such a high amount retired early, 75% of baby boomers do not have a backup plan to boost their savings if they have to quit work prematurely.
An early retirement can bring up a lot of financial stress for retirees — especially if they do not have enough saved and they have to draw from the pot early. It also increases the chances that they will outlive their savings.
In Australia, the retirement age is one of the highest in the world.
Yet more Australians than ever are expecting to work past the age of 70. You see, we are living longer and the cost of living keep increasing.
And we keep taking on more debt. Australians aged 65-plus are retiring with much more debt than ever before.
According to Domain, the 65 to 80 year age bracket still owed an average of $158,800 on their mortgages in 2015.
In addition, many Australians will not be able to work past retirement age — even though they are counting on it. A Mercer study revealed 40% of Australians retired before they were financially ready, mostly due to health issues or redundancies.
And pensioners are underestimating the amount needed to fund their retirement. According to an OECD report, more than one third of Australian pensioners already live below the poverty line.
So, if you have to retire earlier than planned, do you have a backup plan to fund your retirement?
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