What TransAmerica Retirement Survey Says About Retirement Outlook
By Jeffrey Levine, Director of Retirement Education
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Last month TransAmerica released its 17th annual Retirement Survey of Workers. This year’s study, entitled Prospectives on Retirement: Baby Boomers, Generation X, Millennials, yielded some incredible information. Here are some of the most fascinating takeaways I found as I read through the study.
One of the most interesting statistics in the survey is that roughly 2/3 of Baby Boomers plan to work past 65 (or already are working past that age).This is probably somewhat discouraging news for those looking for an early retirement, but from a planner’s perspective, this is actually an incredibly positive sign. In particular, there are three key financial benefits – aside from the physical and mental health benefits so many studies have shown exist – to working well into your 60s and beyond.
First, working past 65 means that you’d generally be working until at least your full retirement age for Social Security benefit purposes. Currently, full retirement age is 66, but for those born in 1955 and later, it gradually increases to 67. If you claim Social Security benefits prior to full retirement age, your benefit will be reduced. Of course, if you’re still working and you don’t need the Social Security benefits to make ends meet, there’s a much better chance that you won’t need to claim your Social Security benefits prior to full retirement age. Not to mention that, thanks to the earnings limits imposed by Social Security prior to full retirement age, if your earnings are large enough you wouldn’t receive any Social Security benefits, even if you had already applied for them. At full retirement age, you could claim your Social Security benefits and continue working without fear of having your Social Security benefit reduced. That said, waiting to claim those benefits even longer could make sense, thanks to the 8% annual delayed credits you could receive, up until age 70.
Another big financial benefit of working well into your 60s is that it gives you a good opportunity to continue to add to your nest egg. By the time you reach your mid-60s, expenses have often dropped to a minimum. By that time, many have finished paying off the mortgage on their homes and/or college expenses for children. 65 also typically means enrolling in Medicare, which can be a huge savings for some. Thus, at 65, 66, 67 and beyond, you may be able to sock away more in savings annually than you ever had before. But that’s not all…
Perhaps the biggest benefit of working well into your 60s is that it allows you to delay dipping into your nest egg longer. The longer you hold off on doing that, the better you are. Investments can continue to grow and compound and, perhaps most importantly, for each year you continue to work, the unknown amount of time you’ll spend in retirement, draining your assets, will be reduced by one year. With medical advances continuing to extend life expectancies, this is hugely important. Consider the fact that, if you’re married and both you and your spouse live to 65, and you were a high earner during your career and have access to above-average healthcare in retirement, it’s almost a coin-flip that one of you will reach 95… yes, 95!
A second interesting statistic from the study that caught my eye is the fact that just 37% of Generation X respondents and an even sadder 30% of Baby Boomer respondents felt that they have recovered from the Great Recession. Considering that the stock market has roughly tripled from its low during that time, and has set new records for all-time highs in 2016, one has to wonder just what it would take to get these groups feeling like they are back on track. Given that this is an election year, these figures take on even greater significance. Whether or not these individuals feel they are making enough progress towards being “fully recovered” could be the critical factor in who wins the White House.
I also found it fascinating how little, relatively speaking, millennials – who many refer to as the “entitled generation” – are counting on entitlement programs to fund their retirement. Some 34% of Baby Boomers surveyed said that they believed that Social Security would be their primary source of income in retirement. In contrast, just half as many – 17% of millennials – felt the same. Conversely, just 28% of Baby Boomers felt their primary income source during retirement would be from their retirement accounts, whereas a much higher 43% of millennials felt the same. Sure, you could argue that millennials just don’t believe Social Security will be around for them in the same way it is today for their parents – so they’ll have to rely more on their own savings, whether they want to or not – and the statistics do back that thought up – but either way, it’s refreshing and encouraging that our youngest workers understand more than ever that if they want to enjoy a comfortable retirement, it’s going to be up to them to make it happen.
Finally – and this is great news in my book – millennials seem to be getting the message that starting to save for retirement early and often is one of the best ways to build a nest egg. According to the survey, the average Baby Boomer didn’t start saving for retirement until 35 years of age. Generation Xers faired much better in that category, beginning to save for retirement, on average, at 28. Hands down though, millennials win the prize here, starting to save for retirement at an average age of just 22! Given the increased life expectancies that millennials will likely enjoy relative to Generation Xers and Baby Boomers, that early start is especially important. The average 13-year head start Millennials have on Baby Boomers could lead to thousands, hundreds of thousands, or even millions more accumulated by the time they retire, depending on how much is contributed and the rate of return.
There’s certainly a lot of negative news when it comes to retirement these days, and it’s not hard to understand why. That said, and while TransAmerica’s 17th Annual Retirement Survey shows there’s a long way to go to achieve retirement security for the masses, there are a lot of encouraging signs we should keep our eyes on for the years to come.