Delaying Retirement: Why 68 Has Become the 'New 65'

By Sharon Epperson, CNBC Personal Finance Correspondent

NEW YORK (CNBC) --For many Baby Boomers who are closing in on retirement without enough money in the till, working longer is the only lever they can pull.

"68 is definitely the new 65!," exclaims Stacy Francis, a certified financial planner in New York City. "Delaying retirement leaves a worker with fewer years of retirement to finance, more time to save and earn returns, and higher Social Security benefits if they delay taking them."

A survey by human resources consulting firm Towers Watson earlier this year found about 39 percent of workers plan to delay retirement -- and the majority of those delaying retirement expect to work another three years. The findings mirror the advice of the financial experts in a CNBC recent roundtable discussion on "The New Retirement."

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"If you can keep your job, YES, work longer," agrees Frank Troise, senior portfolio manager at SoHo Asset Management in San Diego, California.

He says Boomers face a "financial tri-fecta" -- income, expenses and investment returns -- and if you lose one, the other two have to be modified.

"The Boomer today who is 55 or older, they're not receiving any income appreciation," Troise says. "They're at serious risks of not keeping their jobs. Since income is not a variable they can control, if they're also now reassessing their market returns, the only other variable they can control is their expenses."

"Not only does working longer mean more contributions and more compounding, but the longer you can defer drawing assets from your portfolio, the more you improve its longevity," says Christine Benz, director of personal finance at Morningstar.

"It's also likely that bond and cash yields will be more hospitable in the years ahead than they are right now," she adds. "And delaying Social Security benefits is also valuable."

If you're 55 or older, you won't reach the full retirement age for Social Security benefits until age 66 1/2 or 67.

So retiring at 68 or even 70 may not seem like much of a stretch.

Delaying retirement beyond your full retirement age -- until you're required to take distributions at age 70 -- can increase your Social Security benefits by 8 percent a year, plus these benefits are largely tax-exempt.

By retiring at age 70, you'd receive nearly double the annual Social Security as you have received if you took early retirement at age 62. You can check out the calculations on the Social Security Department's website.

The key is to be as disciplined as possible in your retirement savings strategy, especially in your 50s, financial experts say.

Those 50 or older can contribute extra "catch-up contributions" to IRAs, 401(k)s and other defined contribution plans.

For 2012, the maximum contribution for a Roth or Traditional IRA is $5,000 -- but those 50 or older can contribute $6,000.

For 401(k)s, the contribution limit is $17,500 or $22,500 if you're 50 or older.

But once you're in your 60s, those "catch up contributions" may not be as beneficial, according to some studies. So if you've been disciplined in your savings, you may be able to relax and "practice retirement" a little while you continue working.

An analysis by T. Rowe Price found that once you hit your early 60s, you're not benefiting from tax-deferred compounding that much--since your time horizon is pretty short. So why not continue working beyond 65, but stop making 401(k) contributions and spend those 401(k) contributions instead?

"The reality is if you're going to have to keep working, it's a way to kind of split the difference," Benz says. "That way you can enjoy some of the things you're hoping to enjoy during retirement--taking your grandchildren to Disney, for example--while you're still earning a paycheck."

While working longer or working part-time is increasingly becoming a cornerstone of the retirement plan for many Boomers, "it's risky to count on being able to do so," says Benz. "Poor health or job loss could get in the way."

So protect yourself. Build a cash reserve for a job loss or a catastrophic health event as part of your retirement plan.



--Written by Sharon Epperson at CNBC.

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