Personal finance expert Suze Orman wrote this week that the new retirement age is 70. Not a month or a year before. She pointed to the retirement risk of longevity. Expected longevity for men and women has risen 10% since 2000. According to the Society of Actuaries, men who reach 65 are expected to live to the age of 86.6 and women to the age of 88.8. The numbers are even higher for more affluent households.
Suze wrote that the first 15 years are easy, but you need to support 30 years and not 15. She also pointed to a Fidelity study that a 65-year old couple retiring in 2017 will need $275,000 to cover their health-care costs in retirement. Health expense has become an ever-increasing risk to a successful retirement.
Other risks during retirement include inflation, long-term care, stock market, and interest rate risk. I would add that a new type of risk is political risk. Regardless of your political affiliation, the rules of the game are changing. I prefer that politicians don’t meddle with Medicare, retirement plan rules, and Social Security.
A successful retirement is maintaining your standard of living until the end of your days. Suze’s advice that the new retirement age of 70 really doesn’t ring true with me. The reality is 50% of people expect to keep working past age 65, but only 15% actually do so. The average retirement age is 61, up from 57 in 1991. There are 31% of people entering retirement before age 60. The main reason that I see why many people don’t work past 65, is that employers have forced them into early retirement. There are not many companies looking to hire a 69 year old for a full-time position. I find that many people who continue to work into their 70’s and even 80’s do so because they enjoy many aspects of their jobs.
My major concern is that the government might play a hand in pushing out the average retirement age. Fiscal deficits will eventually force politicians to raise the age of full retirement for collecting Social Security. The full retirement age used to be 65 for everyone born in 1937 and earlier. The government then moved the full retirement age to 66 for most baby boomers. They further climbed it to 67 for everyone born in 1960 or later. It’s only a matter of time until they move the full retirement age to 68 or older.
The biggest consideration for any retiree is Medicare eligibility. Medicare can be the deciding factor for when people retire. Medicare coverage starts at age 65 and is the best health insurance on the market. Early retirees learn quickly that private health care before the age of 65 is very expensive. Personal savings are usually drained paying for these premiums.
The health and quality of life is most important to retirees. This is where Suze’s advice falls short. Her argument is based on life expectancy and not the quality of life. Life expectancy statistics are meaningless to me. All of my retired clients would support the fact that their best retirement years will be spent in their 60’s and not their 90’s. Suze’s advice to the general public is just that, a blanket statement written to capture headlines. No two financial circumstances are alike and the final decision to retire will always be a personal decision.
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