Spotlight: Bad Economics: Midlifers push back their retirement date

Bad Economics: Midlifers push back their retirement date – again!

By: Karen Springen |
Published: November 10, 2011 1:00 PM ET

With a volatile stock market and a fluctuating unemployment rate, midlifers understandably are feeling insecure about retirement.

According to a new Associated poll, only 47 percent of Americans born between 1946 and 1964 say they feel confident they will be able to afford a comfortable retirement, down from 55 percent in March.

As a result, a growing number of midlifers (73 percent compared with 67 percent in March) say they plan to keep working in retirement. In fact, they are more likely than any other age group to say they expect to continue earning money. “Is that because people retiring during times of uncertainty or is it because they truly have a desire to continue to work in their 70s?” says Mark La Spisa, president of Vermillion Financial Advisors. “No. In most cases, it’s because all of the sudden they feel they got ambushed and want to be certain they have assets to last throughout retirement.”

Yet Americans remain positive. According to the poll, 70 percent of 47- to 65-year-olds say they are either “very happy” or “somewhat happy.” And 71 percent say their health is either “excellent” or “good.”

Many midlifers are postponing their exodus from the workplace, with 16 percent planning to wait until after age 70. About a quarter (27 percent now, similar to 25 percent in March) say they “never plan to retire.” (Three in 10 midlifers say they already consider themselves retired.)

Increasingly, midlifers are counting on Uncle Sam. According to the poll, 45 percent (up slightly from 40 percent in March) say they will rely heavily on Social Security. By contrast, 29 percent (up slightly from 24 percent) say employer-paid pension will play a vital role in their retirement income.

Younger people are more likely to say that they will depend on a workplace retirement savings plan than midlifers (37 percent among those born later than 1964 call it “extremely important”) and less likely to depend on Social Security (35 percent of that age group call Social Security “extremely important”).

It’s a case of back to the future. In 1932, when Franklin D. Roosevelt took office, only about 5 percent of the elderly were receiving pensions from their employers, according to the Social Security Administration. When he signed the Social Security Act three years later, he wanted Americans to provide for their own future financial security by paying taxes while they worked.

Hard Times

Forget living in the lap of luxury. According to the poll, 41 percent of midlifers expect they will need to scale back their lifestyle in retirement and 31 percent believe they will struggle financially.

Yet, their relatives are off the hook. Only 10 percent say they expect money from other family members to be either “extremely important” or “very important.” Only 5 percent say they expect to be either “extremely likely” or “very likely” to be financially dependent on their kids or other family members and only 4 percent say it’s “extremely likely” or “very likely” that they will need to move into the home of one of their children or that of another family member. “When I talk to clients about retirement, nobody wants to be financially dependent on their kids or anyone else,” says La Spisa. “That’s a common core belief for Americans. They may have to, but they don’t want to. They want to be independent. They want to be self-reliant.”

Most midlifers are not relying on money from the sale of their home. Only 20 percent expect it to be “extremely important” or “very important.” To make money, they could sell their house, buy something smaller, and invest the rest, says La Spisa. It’s a headache. “In today’s market, a lot of people go, ‘My house is paid for. If I go somewhere else, how much am I going to save by moving and how much will I have to invest?'” he says. (They could also get a reverse mortgage.)

More than any other age group, midlifers think about retirement. In fact, 33 percent of 47- to 65-year-olds devote a “great deal” of thought to it – compared with just 10 percent of 18 – to 29-year-olds, 19 percent of 30- to 46-year-olds, and 22 percent of Americans 66 and older.

With the Dow Jones average falling more than 10 percent from March until the time the poll was taken, 62 percent (5 percent more than in March, a slight increase) say that one or more of their investments has taken a hit. In fact, 42 percent lost money on a workplace retirement savings plan, 41 percent on personal investments outside of an Individual Retirement Account or workplace savings, 32 percent on an IRA, and 29 percent on real estate. “You have to be a renter with no money to be able to say, ‘I haven’t lost anything,” says La Spisa.

The typical result: delayed retirement. According to the poll, 53 percent of midlifers who lost some of their investments now say they will retire later than they expected.

It’s never too late to plan for retirement

The lesson: “Plan, plan, plan,” says La Spisa. “The people who do nothing are the ones you’ve got to worry the most about. They just kind of have this hope that everything is going to work out in the end. For the vast majority of us, that’s not going to work well.”

Most of La Spisa’s new clients are ages 50 to 70. “There’s something magical about age 50. ‘Oh, my God, there’s 15 years to what normal retirement is, and I’ve got to get serious,'” he says. “You don’t have to convince them that starting to plan makes a lot of sense. If you’ve got a big test coming up, you study for it. If you’re going to look for a new job, you want to get that resume crisp. Why would retirement be any different? You’ve got to plan for it.”

Look at whether you can retire comfortably. “It’s one of the first questions I’m always going to get,” says La Spisa. “It depends on your definition of comfort.” Take an inventory. “We need to know the good and the bad within your finances,” says La Spisa. Consider assets and spending habits. “I need to know if I have someone who golfs every day at $200 a round,” he says.

Say a couple expects to get $40,000 a year from Social Security and also plans to live off $1 million in retirement savings. If the husband and wife take 4 percent out of their savings each year (for an extra $40,000 a year), and they spend less than $80,000 annually, they’re in good shape. “If they plan on spending $10,000 a month, we’ve got a problem,” says La Spisa.

Financial advisers also help midlifers look at their family mortality rate and their income and savings. “What is the minimum rate of return they must get on their investments to have these assets last?” says La Spisa. If they need a 4 percent average rate of return, they’re in good shape, he says. “If they need to average 14 percent, they’re going to have a problem.”

Bad Economics: Midlifers push back their retirement date – Vermillion Financial Advisors, Inc.

Bad Economics: Midlifers push back their retirement date