Why 70 is the new 65 for retirement

Age 70 is becoming the new target retirement age in the U.S. Half of all workers age 60 and older plan to retire at age 70 or not at all, a recent survey by CareerBuilder found.

Given the longer lives Americans can expect, working longer is inevitable. During the last half of the 20th century, the number of years in retirement expanded dramatically, due to people living longer and retiring earlier. According to a report by the Stanford Center on Longevity, the average period of retirement increased from eight years in 1950 to more than 20 years in the early 21st century.

But we can’t just keep adding the extra years of life to our retired years, so planning to work longer is a realistic goal. And there’s evidence that most Americans will enjoy a health status that could enable them to continue working well into their 70s.

In addition, working longer is a good option (and maybe the only option) for aging workers with meager retirement savings, for a number of reasons:

• It enables you to delay starting Social Security benefits, which significantly increases your expected lifetime payout and improves the financial security of your surviving spouse if you’re married.
• You might receive health insurance from your employer at a reduced cost, compared to the cost of buying it on your own.
• Working can help maintain your health, particularly if your employer offers a wellness program.
• You might enjoy valuable social connections that research shows help enhance your health and well-being.

However, unless you take steps to maintain your ability to continue working, delaying retirement may be more of a hope than a realistic strategy. These steps include maintaining your health, keeping abreast of new career opportunities, updating your job skills and refreshing and updating your job network.

For workers who are fortunate to have significant retirement savings, working longer provides a double financial boost, allowing your savings to grow for more years while reducing the number of years in retirement that you’ll rely on your savings for living expenses.

According to CareerBuilder, 42 percent of surveyed workers think they’ll need at least $500,000 in savings for their retirement. Almost one-fourth of respondents reported that they would need less than $500,000 in savings.

Let’s look at one example that shows the impact of delaying retirement from age 65 to 70 for a married couple, both age 65, who have that $500,000 in savings. Let’s also assume that the primary wage-earner makes about $75,000 per year.

• Using Social Security’s quick online calculator, this couple’s combined worker and spousal Social Security annual income increases from about $29,400 to about $45,200 by delaying the start of Social Security benefits to age 70.
• Buying a low-cost, fixed-income annuity often generates the highest amount of initial retirement income, compared to other retirement income products. If this couple were to buy a 100 percent joint-and-survivor annuity at age 65, their annual income would be about $28,000 per year, according to annuity payout rates from Income Solutions. Now let’s assume their savings earn 3 percent per year from age 65 to age 70, they make no additional contributions between age 65 and 70, and instead they buy the annuity at age 70. Given all that, their estimated annual income would be about $36,000 at age 70.

In this example, delaying retirement from age 65 to age 70 increases their total retirement income from $57,400 to $81,200, illustrating the viability of a downshifting strategy for workers in their early 60s who’ve accumulated some retirement savings. 

In order to keep working yet give themselves some more free time, they may be able to reduce their hours or income to the level that just covers their living expenses until they retire, enabling their financial resources to grow until age 70.

Nobody said it would be easy to live a long time, so you’ll want to explore all of your options to make that happen. After all, working longer sure seems like a better option than that other retirement strategy: dying sooner.