Nearly one-fifth (19%) of Americans age 70 to 74 were still in the workforce as of the end of June, according to the latest jobs report from the Labor Department on July 7. Some are working because they are healthy and enjoy their work. Most, however, are still working because they haven’t saved nearly enough for retirement.
Another part of the problem is that the world’s richest countries need to significantly hike their retirement ages in the years ahead in order to prevent pension systems from collapsing, according to the World Economic Forum (WEF) which studies such data.
Working until at least 70 should become the norm by 2050, or possibly much earlier, the WEF predicts in its latest report. The average retirement age in developed countries is currently 65 for men and 63 for women.
Another part of the problem (and in many ways it’s a good thing) is that people are living longer than ever, but the average retirement age has not kept pace for decades. Pension funds have been unable to keep pace. It’s a trend that will only accelerate: Babies born today in many advanced economies can expect to live to 100 or longer.
The main problem regarding retiring at the earliest age to receive full benefits (Social Security, etc. in the U.S.) is the fact that most workers approaching retirement in developed nations have not saved nearly enough to have the lifestyle they had hoped for in retirement.
Americans face the largest gap between what they’ll need and what they’ve saved to retire: the collective shortfall hit $28 trillion in 2015 and will almost quintuple to at least $137 trillion by 2050 – if major changes aren’t enacted.
It’s the crisis that won’t go away and will only get worse. That’s what we’ll focus on today.
Almost One-Fifth of Americans Are Working Past Age 70
More and more Americans are spending their golden years on the job. Almost one-fifth of people age 70 or older were working at least part-time in the second quarter of this year, according to the latest unemployment report released on July 7.
Among those 65 or older, their employment-to-population ratio hasn’t been this high in 55 years, before American retirees won better healthcare and Social Security benefits starting in the late 1960s. Unfortunately, this trend looks likely to continue.
More and more Baby Boomers are increasingly working past the traditional retirement age of 65. Last quarter, 32% of Americans ages 65 to 69 were employed, up from 22% in 1994. The Labor Department estimates that this number will rise to 36% by 2024. Among those ages 70-74, 19% were working, up from only 11% in 1994.
A number of factors are keeping older Americans in the workforce. Many are healthier and living longer than previous generations. Some decide not to fully retire because they enjoy their jobs or just want to stay active and alert.
Others need the money. The longer you work, the easier it is to afford a comfortable retirement. Longer lives and rising health care costs have made retirement more expensive at the same time that stagnant wages and the decline of the traditional pension plan have made it harder to save enough.
The U.S. isn’t the only place people are planning to work longer. Around the globe, workers of all ages are steadily moving their retirement dates later and later in life. A third of current workers in the U.S. and Japan expect to work past age 70.
Workers of the World
Even after they consider themselves officially “retired,” most Americans are planning to continue working at least part-time. According to a survey by the Employee Benefit Research Institute (EBRI), 79% of US workers expect to supplement their retirement income by working for extra income.
Seniors, There’s No Guarantee of a Job in Retirement
Yet there’s a big problem with these plans. Just because you want to work doesn’t mean you can. Older Americans often find it difficult to get a desirable job.
Then there is the issue of losing your job before you planned. When surveyed, 61% of American retirees say they had to retire sooner than they’d planned. That’s more than anywhere else in the world, according to the 2017 Aegon Retirement Readiness Survey of 16,000 people in 15 countries. Globally, 39% of retirees say they quit working early for various reasons.
Too many older Americans find themselves unemployed because the company they worked for closed down or moved its operations elsewhere. In addition, advances in technology are replacing American workers.
Health problems may force you to retire early. While longevity has generally improved along with medical care, especially for the wealthy and well educated, more recent trends in the US show many Americans’ health is deteriorating.
Next, there’s the possibility that employers might not be interested in you, especially if you don’t have the right skills or experience. Or they may have a bias against hiring older workers. Although age discrimination has been illegal for 50 years, some employers continue to see older workers as a liability.
Some companies and even industries require workers to retire at certain ages. Airline pilots are one such example. As a result, many seniors who would like to extend a full-time career may be forced to take temporary jobs, or work as independent contractors.
Rather than retire, older workers often switch from traditional jobs to self- employment, this according to a study released last month by the National Bureau of Economic Research (NBER) that analyzed US tax and survey data.
In the process, older Americans often switch occupations as well. All too often, they pay an economic price for doing so. The NBER study found that older Americans who switched from traditional jobs to self-employment saw their average annual earnings drop by over $18,000.
The irony is, those seniors who find it easiest to keep working – healthy, well-educated, and highly skilled people who enjoy their jobs – tend to be the least likely to need the money. Other older Americans, faced with few good job choices, often just decide to retire and try to live frugally off Social Security and savings.
The bottom line: The share of older people in the workforce today is higher than at any point since before the creation of Medicare in 1966. Even more older Americans might be out there working if they were healthier and had better job prospects.
Baby Boomers Not Nearly Prepared For Retirement
Retirement is right around the corner for Baby Boomers – if they haven’t already entered it – yet so many are financially unprepared.
Baby Boomers, those born between 1946 and 1964, expect they’ll need at least $658,000 in their retirement plans by the time they retire. Yet the average in those employer-sponsored plans was only $263,000, according to a survey of almost 1,000 investors by financial services firm Legg Mason.
Older Boomers aged 65 to 74 had an average of only $300,000 in savings according to the Legg Mason survey. That’s still less than half the assets they hoped to have in retirement.
Furthermore, their asset allocation for all of their investments was considered “conservative” according to the survey. On average, they had 30% in cash, 24% in equities, 22% in fixed income, 4% in non-traditional assets, 8% in investment real estate, 2% in gold and other precious metals and 8% in other investments. Such an allocation is not likely to deliver the returns needed to reach their savings goals.
Generation X, those born between 1965 and 1981, aren’t doing all that much better, though they have the benefit of more time to reach their financial goals. More of them have a defined contribution plan, according to the Legg Mason survey, with an average of $199,000 stashed away for a goal of $541,000 by retirement.
They are also investing conservatively, with 25% in cash, 21% in equities, 17% in fixed income, 11% in non-traditional assets, 16% in investment real estate, 7% in gold and other precious metals and 4% in other investments, according to the Legg Mason survey. Here, too, they are not likely to reach their savings goals.
Millennials Saving Less Than Half of Recommended Rate
Meanwhile, Millennials – those born from the 1980s to the early 2000s and our largest generation – are in even worse shape when it comes to retirement. According to a poll by MSN Money, 67% of Millennials want to retire by age 65 or younger. The current full retirement age, meaning the age at which Social Security benefits fully kick in, is 67 for those born in 1960 or later.
A rule of thumb is that young people in their twenties should be saving at least 10% of their income for retirement and an even greater percentage as they get older. But most Millennials are nowhere near that. The MSN poll found that nearly half of Millennials are saving only 5% or less of their income.
A recent report by Vanguard, which manages 401(k) accounts for 4.4 million Americans, underscores this finding. U.S. employees under age 25 contributed an average of just 3.9% of their pretax income to a 401(k) last year, down significantly from 4.7% in 2015, while 25 to 34-year-olds socked away only 5.3% of their income.
For many Millennials, the burden of student loan debt may be to blame for paltry savings. But by the time they’ve paid off their debts – and are likely earning a higher salary – financial milestones hit, like buying a home, marriage and kids.
Americans across the country, in all age groups, are drastically under-prepared for retirement. Only a third of Americans who have access to a 401(k) plan contribute to it. For those with employers who “match” some percent of employee 401(k) contributions, this is like turning down free money.
There are a multitude of reasons most Americans have not saved nearly enough for retirement. These include people who don’t believe they make enough money to save for retirement, those who have to leave the workforce in their prime years to care for loved ones and/or choosing to pay for their children’s college tuition – instead of saving for their own retirement.
At the end of the day, not saving enough was the biggest regret among older Americans, according to a survey of 1,000 participants by personal finance site Bankrate.com. I wish I had the answer to this coming crisis, but sadly, I do not.
Gary D. Halbert is the president and chairman of Halbert Wealth Management, Inc. His Forecasts & Trends Weekly E-Letter may be obtained free of charge by subscribing at www.halbertwealth.com.