SunSentinel.com

March 28, 2005

 

Retirement for many Baby Boomers will include part-time work

by Diane Lade and H. Cruz

Worried about having enough money in retirement?

According to a new survey, Baby Boomers have a bonus coming to them that may enable them to live comfortably into their old age. It's called longevity.

Life expectancy has increased to the point that an American reaching age 65 can expect to live, on average, for 19 more years, according to federal statistics. Boomers can add thousands to their nest eggs if they spend part of their later years working, according to "The New Retirement Survey," released by Merrill Lynch last month.

The study suggests that financial planners and corporate retirement plan managers need to rethink some of the traditional strategies when helping their clients prepare for retirement.

Plans now generally assume employees will continue working full time and pumping money into their nest eggs until their mid-60s, when they can partially or fully draw Social Security. Then the drawbridge falls, the planners replace the asset-building strategy with one involving asset protection and withdrawals, and the employee crosses over the moat into retirement.

But the survey makes a pitch for a "transition" job between ages 62 and 70. And Merrill Lynch has created an online calculator at totalmerrill.com/retirement (click on New Retirement Illustrator) to entice future retirees with transition work potential.

Punching in an example shows how staying employed can do more than just keep you busy.

Take someone who is 50 and has $200,000 saved in a 401(k), IRA or other retirement account.

That employee would need to save at least $49,000 annually for the next 12 years to get the $1 million nest egg they would need to fully retire at age 62, according to the calculator. By working from 62 to 70, however, the same employee would need to save only $26,000 annually and to accumulate $689,000 in retirement assets by age 62.

These calculations assume the employee will need a $50,000 annual income for living expenses, and that they will spend that same amount during their eight-year transition period.

Yet only 6 percent of the 3,448 men and women age 40 to 58 who were polled for the New Retirement survey intended to work full time during the transition years. Sixteen percent said they would work part time and 42 percent intended to cycle between work and leisure.

Less work, of course, means less money.

Let's say that the same person in the example above decides to work part-time between age 62 and 70. That reduced salary, plus whatever Social Security or pension he might be drawing, generates only $25,000 annually. His living expenses during transition time remain at $50,000 annually.

So to keep his desired nest egg intact, that worker needs to save $37,000 annually instead of $26,000 beginning at age 50 to 62 if he wants to work only part-time during transition. And he would need an $865,000 nest egg at 62 instead of a $689,000 one.

Obviously, this scenario could change if workers have high pensions or other income sources outside of their retirement nest egg, or find ways to seriously cut their living expenses during transition. But for others, being able to work part time during the transition years will mean they must save more during their full-time working years.

And don't forget to figure in the taxes you'll be assessed when drawing money out of your 401(k), IRA or pension. That $50,000 in the example above becomes $37,500 after taxes.

Gerontologist and author Ken Dychtwald, president of the Age Wave consulting group, conducted the New Retirement study along with Merrill Lynch and Harris Interactive. There were questions about how people viewed their own retirement and future aging, as well as on their financial needs.

While many seemed enthused about the "new retirement," their responses indicated that exactly how this brave new world will play out remains to be seen.

Their No. 1 fear as they entered the next stage of life was not boredom or even dying, but being unable to afford health insurance -- a legitimate fear at a time where out-of-pocket health care costs can jump as much as 20 percent a year. A recent Harvard University study of 1,771 people who filed for bankruptcy in 2001 found 30 percent had done so because of an illness or injury, even though they had health insurance.

The Boomers in the New Retirement study preferred seasonal or part-time jobs. They said staying active is more important than high earnings. But those attitudes may not be realistic.

Boomers, squeezed by high housing and medical costs as well as tempted by easily available credit, are more likely than previous generations to enter the senior years in debt. According to Demos, an economic research and advocacy group, average credit card debt for the American family grew from $2,607 in 1989 to $4,126 in 2001.

On a lighter note, couples may find they're in for a shock as they head into retirement together. Boomer men told the New Retirement survey that they were looking forward to working less, relaxing more, and spending more time with their spouse.

And the women? With the children grown, they intend to get involved in their communities and pursue new careers -- things one can assume will have them spending less time with their spouse. Do these people plan to live in the same house?

The Total Merrill Web site listed above includes self-assessment questionnaires along with the New Retirement Illustrator to guide you through your transitional time.