Retiring Too Soon

How Long Can You Afford to Live in Retirement?

Our lifespans are increasing dramatically. Paradoxically, the percentage of time we spend working is decreasing. Members of the baby boomer generation coming to retirement age seem eager to stop working earlier than their forefathers.

A hundred years ago, most people worked until the end of their lives. Today only 16 percent of men in the U.S. work past their 65th birthday. If, as studies suggest, you can expect to live a good 15 to 20 years after you leave the workforce, a prickly question is raised: have you properly calculated how much money you will need to live comfortably and independently for the rest of your life? Have you a realistic plan for achieving that goal?

Why are people working a smaller percentage of their lives? Economists are not sure, but two theories seem probable:

• Social Security Guidelines: The rules governing Social Security were written in the 1930s and the guidelines implicit in the program favor retirement around the age of 65. (There is a higher rate of taxation on wage income earned at older ages and social security payments can start being earned as early as 62.)

  It is important to note that these guidelines made sense in the 1930s when the average life expectancy of someone who had lived to 65 years of age (retirement age) was about 77 years old. Social Security was only meant to pay for about 12 years beyond retirement – not 20 or more years.

• Rising Income: Another theory regarding why Americans are choosing a retirement age well beyond their mortality is that rising lifetime income has led workers to choose a larger period of leisure at the end of their lives. And, it is true; we are earning more money than previous generations.

  The problem here is that many individuals are not saving adequately. More money has been made, but not saved sufficiently to be spent in retirement.

Most Americans now retire – or at least start collecting Social Security – at the age of 62. Not only does this leave years and years of life to fund, but it also reduces the amount of money you receive each month from the government.

What is driving you toward retirement? Are your goals reasonable and rational?

Explore the benefits of working in retirement and delaying Social Security. You may also want to experiment with different retirement dates in the NewRetirement Retirement Calculator to see how the timing impacts your retirement.