Why Your Retirement Age Matters

Protesters in France recently clamored over the retirement age being raised from 60 to 62, but in the States, retiring at older ages is becoming the norm among an expanding pool of senior citizens.

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An independent survey of 431 U.S. retirees who are 65 and older conducted by Extend Health this year found that 85% of respondents opposed a mandatory retirement age. Of those who disagreed, 42% say the retirement age should be 65; 31% say it should be 70; 21% say it should be 67; and the remaining 6% say it should be 72.

So when is the best age to retire? Some workers say it depends on the job. “As an elementary school PE teacher, being around kids keeps me young—it brings me back to my youth,” says Len Saunders, adding that for occupations such as law enforcement, earlier retirement might be beneficial for safety reasons.

But for those without the luxury of deciding when to retire based on preference, it’s mostly about the Benjamins. Personal satisfaction should be another key factor, though it’s not always given enough consideration.

In This Corner: Early Retirement

The attraction of retiring in one’s early 60s is having more time to enjoy the golden years (although as noted in the next section, this isn’t necessarily how it pans out).

As for the monetary incentive, Stephen J. Butler, CEO of Pension Dynamics, explains, “People who create extra income by working fail to consider how much of that additional income is being taxed at a high tax bracket. If they are single, and they already have $40,000 to $50,000 of adjusted gross income due to Social Security and income from investments, each additional dollar they earn will be taxed (in California at least) at a combined rate of almost 50% when they calculate their highest marginal tax rate for both state and federal taxes as well as social security and Medicare.” Once you factor in commuting costs, Butler says the net after-tax income might not be worth the effort.

What many working seniors don’t realize, says Butler: “They pay nothing on the first $20,000 to $30,000 and then a high rate on the last $20,000 to $30,000. If they take a job that pays $40,000 a year, they’ll be lucky to have $20,000 of that to spend. Because they pay so little in taxes on what they have already (no Social Security or Medicare tax on social security or investment income) they assume that the same negligible tax rate will apply to what they earn on their new job.”

The Case for Later Retirement

As the average human life span lengthens, it’s caused a shifting perception of not just what behaviors and lifestyles are appropriate for seniors, but also when old age begins.

“Later retirement is a very big trend,” says Stacy Francis, CFP and founder of the nonprofit organization Savvy Ladies. “More and more people are working to 65, even 70, out of necessity rather than wanting to be working. They have a different lifestyle than those of two or three decades ago—more active, vibrant, and expensive—travel, golf, dinner. To afford that lifestyle, they have to work a little longer than they hoped, and the stock market hasn’t helped them.”

Steve Weisman, a professor of elder and financial planning, cites the Social Security benefits of working into your later 60s and beyond. “The amount of Social Security a person receives is based in part on your highest earning 35 years. Working into your early 60s gives you the opportunity to increase the amount that you will ultimately be receiving from Social Security. Another way you can increase your benefits is to defer taking Social Security old age benefits until you are 70. By doing so, you can increase the amount of your Social Security benefits by 8% for each year that you delay taking full retirement benefits after you reach full retirement age which for many baby boomers is 66. Working longer also gives you more time to contribute to IRAs, 401(k)s, and other retirement vehicles. And the laws are written to permit people over the age of 50 to contribute more to their retirement accounts each year on a tax-advantaged basis.”

James Early, a Senior Analyst at The Motley Fool, makes a most appealing case for late retirement. “The main benefit is compounding. If you've invested $500 a month from the age of 40, you'll have a clip under $750,000 by the time you hit 65—assuming the stock market's 10.5% long-term yearly average return. Push your retirement back five years, and you've got almost $1.3 million. Wait five years longer and it's $2.2 million. In other words, on top of prolonging your employment earnings, your portfolio alone is paying you an extra $145,000 per year in this example — if you commit to a 10-year deferral.”

“Granted, most folks won't be entirely in the stock market come age 65, which means lower returns, but a lot will come to the table with more than $750,000, too,” says Early. “With the median Baby Boomer's retirement portfolio worth just $2,000 (the average is around $50,000—still not impressive), working later in life is going to be the norm.”

The Healthy Compromise

Many who work with senior citizens advise they never fully stop work, whether paid or volunteer, because statistics indicate retirees who don’t remain active and get regular mental stimulation are more susceptible to depression, addiction, and onset of Alzheimer’s and dementia.

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Corina Kellam, who owns and operates Life History Books, works with seniors daily, interviewing them about their family and personal history. She says, “The sharpest and happiest people I meet are those who continued working until their retirement date. I’ve actually found that the perkiest clients are still working part-time jobs. Even if the work is only a couple days a week, it makes such a gigantic difference to be forced to keep a schedule. On the other end of the spectrum, I have worked with a handful of men who retired very early (around 40) and all of them have admitted they feel antsy and restless. Financially, they’re set, but they’re clearly not content.”

Emergent Research's Intuit 2020 Report uses the term "unretirement" to describe the lifestyle of seniors who continue to work part or full-time or opt to start new careers. Barbara Waxman, editor of the upcoming book "How to Love Your Retirement", calls the phenomenon “pro-tirement.” The nonprofit think tank Civic Ventures runs Encore Careers, a resource for over-50 career changers who want to make a social impact in their new venture. And New Directions, a Boston career firm helping 50+ professionals achieve new jobs and life missions, counts among the organization’s ranks sculptors, sheep farmers, a global human rights champion, and an artisan wine maker.

Of course, the freedom to start a new career later in life is linked to financial stability, says Francis, so it’s not an option for everyone.

Ultimately, the ideal retirement age is up to the retiree and how well they've prepared financially. Francis sums up, “If people can’t answer this question in the positive they need to put off retirement: ‘Are you financially secure?’”

Although there are no absolutes when making this choice, odds are in favor of the older and wiser making the right move: To revisit that Extend Health survey once again, the percentage of respondents who believe they retired at the right time is 74.