It’s grim news: More and more “retirement age” Americans are sticking around the workplace longer, afraid to give up a steady income after the financial crisis torpedoed their nest eggs.
Postponing retirement is an obvious, if unpleasant, choice when resources come up short. But how long does this purgatory have to last?
Every 50- and 60-something’s needs are different, of course, but retirement doesn’t necessarily have to be pushed back 10 or 15 years (or forever). A delay of three to five years can produce good results by giving investments more time to compound and also by reducing the number of retirement years that need to be funded.
The BankingMyWay Retirement Income Calculator shows that a 55-year old who has saved $250,000 and continues to set aside another $5,000 a year could retire at 65 with a monthly income, in today’s dollars, of $2,753.
That assumes an 8% annual investment return until retirement and 6% afterward. The new savings would be increased by 3% every year to offset inflation, and the nest egg would last for 30 years.
Simply postponing the retirement to age 68 and reducing the retirement years to 27 would boost the monthly income to $3,408, giving the retiree another $655 a month. This move would be like adding about $200,000 to the nest egg today. Or it would be like making up for a $200,000 investment loss.
Postpone retirement another two years, to 70, and the monthly income would rise to $3,940. (Also look at the Retirement Planner.)
Any such calculation involves a lot of guesswork, since no one can predict investment returns, inflation and future living expenses with 100% accuracy. But doing a little homework can help improve the odds of a good outcome.
The first step is to find how much you are likely to receive from dependable sources like Social Security and any pension from work. Your pension administrator can tell you how much you are likely to receive given various retirement dates. Most traditional pensions use formulas that consider the number of years with the employer and income during the peak or final years, so staying on the job longer could boost your benefit.