The concept of a “retirement age” is becoming irrelevant, at least according to a new study of middle-class Americans.
Whether it's a desire to reach a certain nest-egg number, dealing with rising health-care costs, or grappling with mortgage debt, more workers are deciding to delay retirement.
A quarter of middle-class Americans — defined as earning between $25,000 and $99,000 annually — say they will “need to work until at least age 80,” according to the annual retirement study by Wells Fargo [WFC 24.94 -0.35 (-1.38%) ].
"Another interesting shift in the mindset of Americans is their perception of how much money they need. Three-fourths of respondents said it's more important to have a specific amount versus a date: $350,000 was the median nest-egg goal, but median retirement savings were only $25,000 dollars," said Laurie Nordquist, executive vice president of institutional retirement at Wells Fargo.
Money managers will tell you that the driving force behind delayed retirement is the savings gap. The gap is widened by grim economic factors hitting the middle class.
"Social Security cuts and mortgage debts are on the top of their minds," adds Nordquist.
1) With boomers staying in the work force for another decade or two, it will keep the supply of human talent looking for work high, which will pressure the value of that human talent downward. That is a key part of wage deflation.
2) The average Boomer thinks they need $350K but only have $25K. Yikes! The Boomer is going to be living with their children or grand children some day. They can't afford a care facility, and the math dictates multi generational family living in the coming decade and beyond, even more so than the economic down turn has forced..
3) Boomers will also have to rethink where they retire. If they think they can do it in expensive states like California, well good luck with that thought. My parents (Boomers) retired at the age of 62. They worked their entire life in California and saved a large chunk for retirement. However, they chose to retire back to Montana where they grew up. One of the reasons was the cost of living was far less than California; housing, taxes, real estate taxes, insurance, etc. etc. The reality is once your done working the financials to move into a low cost state make all the sense in the world for a fixed income retiree.
4) Savings Gap? Okay, let's say it the opposite way. People spend to much of what they make trying to maintain the highest lifestyle they can and don't save anything, often going into debt up to their eye balls along the way. And that's what Uncle Sam promotes, a consumer/debt driven economy.
Mortgage Debt
When it comes to mortgages, the generational gap is the great divider. Overall, 86 percent of respondents said they want to pay off their mortgage before retirement.
Get underneath the ages, however, and the tunes change. Ninety-one percent of people age 25 to 29 cited this goal as very important. Over age 60? Just 40 percent said they thought it was important.
This data reveal a growing trend in expectations. Much of them have to do with how young and old view Social Security.
It's almost impossible to payoff your big house in California, which is another reason why my parents moved back to Montana. In the small remote town where they summer, houses range in value from $50,000 to $100,000, which is much easier to pay off and be debt free in retirement.
Social Security
More than a quarter of people in their 20s and 30s expect no income at all from Social Security during retirement years. On average, people in that age group expect Social Security to cover only 20 percent of their retirement funding, according to the study.
While political leaders consider potential cuts to future Social Security and Medicare benefits, those already in their 60s still consider their pensions a sure bet.
Given these factors, what is a hopeful retiree to do?
"We're seeing people work longer, but they can also change their lifestyle expectations," Nordquist says.
Workers are already adjusting to this new reality.
"I'm talking with the tax man now to see what the options are. I wasn't planning on delaying retirement, no. But I'm considering part-time work," says Linda Wilson, 63, who works full time for the Bonnier Corp. She's been working full time for more than 20 years.
Adjusting your lifestyle? It's a must. If the average boomer has little to no retirement savings, then guess what? They must find a way to live on Social Security. This requires them to live with family or in a low cost state. My father laughs, because the Social Security he and mom receive would barely cover the bills trying to retire in California, which would have forced them to dip into savings each year, but in a low cost state like Montana they can make it work on one Social Security check because their house is paid for. In fact, the cost is good for them, they use their other Social Security check to winter in fun places like beach front Mexico. Again, it's easy math, but many boomers are fighting the reality of simple math. Eventually that will change.
Inheritance? A Thing of the Past
The study also found that older Americans are hanging on to their money. Only 22 percent of respondents said it was important to leave an inheritance.
Though economists pontificate about a massive wealth transfer between generations as the baby boomers age, in a struggling middle class, reality may disappoint.
Little to no money in their 60s, while living longer than prior generations almost guarantees inheritance will be nil for most children of Boomers.
As boomers age each year and the financial realities become apparent, it will become more apparent that the Social Security system is a failed program, nothing short of a government required pyramid scheme.
The golden retirement years for many Boomers will be anything but golden, forced to live on Social Security alone for many.
There is no short term cure for these issues. The long term answer is a slow phase out of Social Security completely, and move future generations on self directed mandatory. retirement plans.
Hope all is well.
J.D. Rosendahl, Rosey