Work Until You Die?

Work Until You Die?

Many people who are currently working are of the belief that they will never be able to retire. New studies show that this is in fact, not the case.

Boston College’s Center for Retirement Research has looked at how much beyond age 65 households will have to work. The result was that 85% of households would be able to retire by age 70. We have found in our practice that by age 50-55 people really start looking at their assets and assessing if they can retire. Then, they get scared because they suddenly realize that they have not been putting enough away to retire – kids, college, elderly parents, etc. have gotten in the way of saving. The Boston College study has shown that people who work 1 – 6 years beyond age 65 can retire. Today’s workers will work longer than their parents did, but they are different than their parents. They are better educated and healthier, generally live longer than their parents and most have less physically demanding jobs.

A rule of thumb we have used over the years is that you need to have $1 million in investible/retirement assets to retire. Today, that number may not be enough, particularly for people that do not have pension and social security income on which to rely.

A more recent study conducted by a benefits firm – Aon Hewitt – on large company 401(k) plans found that only 15%
of employees are on track to retire in their usual lifestyle. Aon Hewitt says that people will need 11 times their old annual pay to be able to retire. This study assumes that social security benefits will be available for use during retirement and that average life spans are 87 for men and 88 for women. Aon Hewitt’s data is good only for those of us 55 and older today. There is much talk/misinformation about changes to Social Security Benefits and Medicare. Hopefully all of this will be resolved in the coming year or two. Then, we will all be back to the drawing board on what it will take to retire.

A good way to look at funding for retirement – you can withdraw 4% per year out of your nest egg and probably will never run out of money before you die. The flip side of this is that you need a pretty large nest egg to support your living. E.g. 4% of $1 million is $40,000 per year.

Raskob Kambourian Financial Advisors is an independent, fee-only comprehensive financial advisory firm registered with the Securities and Exchange Commission.  We offer expertise, competitive pricing, and personalized financial services to meet your “Life Planning” needs.