Many Baby Boomers head to work each day and wonder, "So what's the number?"
How many more years do they need to keep working? It turns out that if many of us could just keep working until age 70, we could be OK in retirement, according to a new study.
Sure, 70 isn't the magic number that most people want to hear. Even so, knowing any number might be reassuring, if you're worried that you'd never be able to stop working.
"My intention was to make people feel better," said Alicia Munnell, director of the Center for Retirement Research at Boston College.
After the Great Recession, more people fear the idea of retirement. But Munnell said many people will be able to retire — if they work a bit longer. "It's better to stay with your full-time job if you can," she said.
The trick is to delay dipping into savings as long as possible.
Munnell, a retirement expert, spoke to me by phone. I had to bring up a topic that's near and dear to many salaried auto retirees. What about those lump-sum offers?
A lump-sum payment in retirement is being offered to salaried retirees at General Motors and as early as August to many salaried retirees at Ford. (Not yet to hourly folks, but some say that could happen one day, too.)
She didn't mince words, calling the idea "terrible." She said she's hoping that retirees "don't fall for the trick" of accepting a lump sum.
Munnell said she can understand why companies want to unload longevity risk and investment risk from their books. But she said generally retirees are better served by the security of a monthly pension check than trying to invest a lump sum on their own.
"It's undoing all the good aspects of a well-designed retirement system," she said.
To have the automakers offer a lump sum when retirees are already receiving payments, she said, is very upsetting and seems like bad public policy to her.
No pension plan is perfect, she noted, but retirees do benefit from a steady stream of income.
Are you ready?
The National Retirement Risk Index, produced by the Center for Retirement Research at Boston College, examines household wealth and retirement readiness. The center receives sponsorship from Prudential.
Research shows that only about 30 percent of households are prepared for retirement at Social Security's earliest retirement age of 62. What's key is that more than 60 percent of those households are covered by a defined-benefit plan or a traditional pension.
Research for the National Retirement Risk Index indicates that about 49 percent of today's working households would be able to afford to retire at age 65.
The unsettling aspect of the study indicated that about 51 percent of working households are at risk if they retire at 65.
In general, people have two options if they're not ready for retirement. They can work longer or save more. "I don't think people can save a lot more," Munnell said.
Working people have a lot of expenses, including raising children, saving for college and paying for cars, mortgages and health insurance.
The study shows about 86 percent of households would be prepared for retirement at age 70.
How Social Security payments are calculated in retirement plays an important part of the work-longer strategy. A Boomer who starts taking Social Security benefits at age 70 would have roughly a 75 percent larger base benefit than if the same person started drawing Social Security retirement benefits at 62.
Knowing when to take Social Security benefits can be difficult — particularly if you're unsure if you'll live well into your 80s or 90s. There can be a break-even point for taking benefits earlier, but that can depend on many factors, including whether you're married.
A simple example: Take a single person claiming at 62 vs. an identical one at the full retirement age of 66. Here, the age at which the two hypothetical individuals had received about identical Social Security benefits is 81. So in that example, if you claimed at 66, you'd need to live into your 80s to receive more money in the long run.
Understanding Social Security
If you live to the average life expectancy, experts note, the system is designed so you'd receive the same amount in lifetime benefits no matter which age you choose.
The Transamerica Center for Retirement Studies indicated that only 14 percent of workers have a great deal of understanding of Social Security benefits.
Yet, that study indicated about 21 million American workers — 54 percent of them women — are expecting to rely on Social Security as their primary source of income in retirement. Overall, that's more than 27 percent of the total American worker population expecting Social Security to be their main income in retirement.
If someone has savings and works a few more years, their 401(k) investments have a longer time to build, too.
And, of course, you have less time to live if you retire later in life, so you've shortened the time you'd need to support yourself, Munnell said.
Retiring and taking Social Security benefits even at 66 instead of 62, she said, can be better for many people. (If born in 1960 or after, Social Security's "normal retirement age" is 67.)
"One of the best things that people have on the asset side of the ledger is a job," she said.
Tips and tools
For every year a person delays receiving Social Security up to age 70, he or she gets up to an additional 7 percent to 8 percent per year (for those born in 1943 or later). The extra amount varies, but it can add up.
AARP has a Social Security Benefits Calculator on its website here. You click on "personalize this guide" to get started.
The June National Retirement Risk Index shows that younger households tend to be less prepared for retirement. Why? They're expected to live longer; Social Security replacement rates tend to be slightly lower for younger households because they face a higher full retirement age, and fewer younger households are covered by defined-benefit pension plans.
The report stated that younger households do not appear to be saving more in their 401(k) plans relative to their income than older households are.
The Center for Financial Literacy at Boston College offers thoughts on curious behaviors that can ruin your retirement here.