Many federal employees, like other members of the nation’s workforce, are postponing retirement, either staying in the federal workforce past their earliest chance to retire or working additional years in the private sector after taking federal retirement.
In fact, working those additional years may be a pretty sound strategy for increasing financial security in retirement, according to research released this month by the Center for Retirement Research at Boston College. At the same time, the authors of the research say working longer does not mean working forever.
Researchers at the center calculated U.S. households’ retirement income as a percentage of pre-retirement income—known as replacement rates—and compared those numbers with target rates that would allow those households to maintain their living standards in retirement. The age at which a household’s projected replacement rate equals its target replacement rate is the age at which that household is “ready” to retire. Researchers assembled the results to create a National Retirement Risk Index.
Among the key findings: Using the researchers’ criteria, only about half of today’s households are ready to retire at age 65—but more than 85 percent would be prepared by age 70. According to those numbers, for most people, being financially “ready” would require a few additional years of working, but not “working forever.”
For low-, middle- and high-income households, only 20 percent, 31 percent and 38 percent, respectively, were financially ready to retire at the Social Security minimum retirement age of 62, based on the authors’ calculations. For those same income groups at age 66, financial readiness rose to 47 percent, 55 percent and 62 percent, respectively. At age 70, readiness for those three groups stood at 82 percent, 87 percent and 88 percent, respectively.
The researchers also emphasize the effect that working longer and postponing retirement have on Social Security payments. They note that for each year between the ages of 62 and 70 that a person waits to begin taking Social Security payments, those benefits increase by about 8 percent per year before leveling off at age 70.
The researchers also remind prospective retirees that the longer one waits to retire, other financial advantages also may kick in as certain expenses exit the picture: Mortgages are more likely to be paid off, and people no longer need to channel a portion of regular income into retirement savings.
So, do most people need to work a few extra years to be financially prepared to retire? According to this research, yes.
But given the fact that most Americans generally are living longer and doing less physically strenuous work, it may make sense to spend a few more years in the yoke if it means making those retirement years a lot more comfortable when they finally do arrive.