Are you getting close to full retirement age and worried that you can't afford to retire? You're not alone. Many older adults are working longer and finding other ways to make sure those nest eggs will be enough to last throughout retirement.
- Sixty-eight percent of baby boomers expect to be working during retirement.
- Increasingly, employers are adapting work schedules and responsibilities to keep older employees working past full retirement age.
- More and more baby boomers are starting to freelance on their own after retiring from full-time work.
Defined Contribution Plans
One reason baby boomers are working longer is that pensions have largely disappeared, which puts the responsibility on individuals to save for their own retirements.
"Many baby boomers were raised to believe in a pension obligation from an employer with whom they spent 25 or more years. So their focus was not on 'maintaining' the wealth they created through working by investing," says Dominique J. Henderson, founder of DJH Capital Management in Desoto, Texas.
They were largely dependent on someone subsidizing their retirement through monthly payments until they died. This is rarely the case now with the transition from defined-benefit plans to defined-contribution plans. With bad or no advice, you have a generation of people faced with working longer, as they have lost nearly three decades of overall stock market growth.
Of course, there are other reasons people stay at work longer. Life expectancies are higher and many older adults want to keep working to stay engaged, to name two.
If you're a baby boomer, here are tips to help you boost your nest egg and make your money last—and reasons to stop worrying about retirement.
1. Baby Boomers Set the Trends
As a baby boomer, you've seen plenty of trends come and go, and retirement at age 65 is one that has come and gone. The full retirement age is now 66 for people born in 1954. It rises on a sliding scale of two months per year to reach age 67 for people born in 1960 and later.
Pensions have become rare. Healthcare remains expensive. Individual retirement accounts (IRAs) and 401(k) accounts were supposed to be modern alternatives to a pension.
However, according to the 20th Annual Transamerica Retirement Survey of Workers, published by the Transamerica Center for Retirement Studies (TCRS) in May 2020 (the most recent figures as of Nov. 2020), the median baby boomers have set aside for retirement is estimated to be $144,000.
That's a nice chunk of change, to be sure. But as of 2020, a 65-year-old's life expectancy is 17.0 years for a male and 19.8 years for a female.
You may be wondering how this is supposed to help you stop worrying. Here's how: Consider the sheer size of the baby boom generation. If you're a member, you're part of a group that sets the trends, and, out of choice as well as necessity, the trend is about staying active, at work and at play, after full retirement age.
The estimated median amount of money baby boomers have saved for retirement.
2. Retirement and Working Are Not Mutually Exclusive
Who retires these days, anyway? In the TCRS survey, 68% of baby boomers said they plan to work after age 65 or don't plan to retire ever.
That's a radical change in thinking from their parents’ generation, but it should be expected. "[Baby boomers] are overturning long-standing assumptions about working until age 65," wrote TCRS president Catherine Collinson, "calling for dramatic changes in current employment practices and proving that retirement and working are not mutually exclusive.”
The survey shows that many actually want to work in retirement because they enjoy what they do. That said, most think they will have to work to maintain an adequate income and decent health benefits.
Fortunately, "you can work and receive full Social Security benefits just as long as you are full retirement age," says Mark Hebner, founder and president of Index Fund Advisors Inc., in Irvine, California. "You also need to be careful if you are receiving Social Security disability or supplemental security income payments," he adds.
3. Adjust Your Work Schedule
As they reach or approach the full retirement age, workers want to continue to use the skills and experience they learned over a lifetime. Still, they may want to shift to fewer hours or more flexible hours, a more rewarding role in a related field, or even a second career, the survey shows.
That sounds appealing, but the biggest barrier could be your current employer. In the TCRS survey, employers paid lip service to the invaluable contributions of their older workers.
However, the older workers weren't always so sure about their boss' real level of commitment. In fact, 69% of baby boomers considered their employers to be "age-friendly." So you may need to take a chance and look elsewhere for alternatives.
4. You Can Start to Freelance
If you're not sure about working longer at your current job, you might want to consider building a freelance career. And you don't have to go whole-hog and quit your day job to get started.
Present your skills on any of the many websites that match freelance professionals with clients and test the waters. Entrepreneur.com has a list that is not comprehensive, but it will give you an idea of the opportunities that are now at your fingertips, thanks to the web.
5. You Can Lower Your Cost of Living
Your lifestyle may well have been established decades ago when you were beginning or anticipating a successful career, a family, and a comfortable home. Take a look around you and consider: Is this where you want to be for what you're now beginning or anticipating in the future?
Your priorities are, after all, quite different. Being in a good school district may not be important anymore. Being near cultural attractions and recreational facilities may be. Your home probably has too much space—and too much stuff. The stairs may well be a challenge for your knees. And, really, mowing the lawn isn't as easy (or fun) as it used to be.
Find a new way of living that's right for you now. It will probably cost less, taking a little of the pressure off you and yours. This downsizing trend among older Americans has long been predicted, but once again the baby boomers have defied expectations by staying put.
"Research has indicated that most retirees end up needing only 60-80% of their preretirement income in retirement," says Hebner. "Nonetheless, looking to further downsize can eliminate mortgage payments—which is one of the biggest expenses for most investors—property taxes, and even the stress that comes with owning a large home."
6. Retirement Abroad May Be an Option
According to the Social Security Administration's own figures, it was sending more than 710,000 payments to beneficiaries overseas as of February 2022. For most, the initial motivation for retiring abroad is a need to live more frugally, but it shouldn't be.
Living abroad isn't just about cheaper living; it's about living well. There are many places around the world where Americans can live at a fraction of the cost, with all of the proper amenities.
"Living overseas is becoming a smarter choice for many retirees, especially those living on a tighter fixed income," says financial planner Carlos Dias Jr., founder and managing partner of Dias Wealth LLC in Lake Mary, Florida.
European countries such as Portugal have lower-cost expenses, such as food, healthcare, and even energy. Even though taxes are a bit higher than in the U.S., sales tax is often included in the price of goods, which is actually lower than here.
The Bottom Line
You may be tired of hearing the mantra about "thinking outside the box." Nevertheless, the thought of retiring when you reach full retirement age may be one of those boxes you don't want to get trapped inside. Consider your many options and go from there.