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Working in retirement

By Barbara Whelehan ·
Friday, October 15, 2010
Posted: 1 pm ET

Earlier this week, more than 1 million people flooded the streets of Paris to protest government plans to raise the retirement age for the country's public pension system from 60 to 62. It was the fourth such strike this month.

Serbia has plans to increase its early retirement age from 53 to 58, according to a recent article in the Wall Street Journal. The retirement age will increase to 65 in Greece, Hungary, Turkey and the Czech Republic; to 67 in Germany; and to 68 in Great Britain.

To address upcoming shortfalls in the Social Security system here in the USA, a "Report of the Special Committee on Aging" released in May presented 30-odd proposals to shore up the system. Three pertained to raising the retirement age. I personally object to that strategy, although fellow blogger Jennie Phipps thinks it's a good idea.

Control what you can
Under the current system, Americans can start collecting benefits at 62, wait until full retirement age (which ranges from 65 to 67, depending on your year of birth) or delay even further to age 70 to collect a fatter paycheck each month. Bankrate's article "When should you apply for Social Security?" explains some factors to consider before making the decision.

The vast majority of American workers apply before their full retirement age. Why do they tap benefits early?

Certified Financial Planner Jim Cornfeld, an investment adviser for The Buckingham Family of Financial Services, says people file early for three reasons. In his words:

  • Social Security is their only source of support in retirement.
  • They do not understand the benefits of delaying filing.
  • They believe they won't live very long or the system will go bankrupt, and they want to get their money out of the system before either happens.

If you believe the surveys that come out several times a year from various organizations, Americans generally have saved up squat for their retirements and are not renowned for their retirement planning savvy. Of course, that's not true of everyone.

But let's assume a woman is 62 years old, has $150,000 in an IRA and requires $30,000 a year to meet expenses. That would last five years, not including any interest that might be earned in the meantime. Does it make sense for her to deplete her retirement savings so she can wait until her full retirement age to collect Social Security benefits?

"A person with limited resources, such as the one you describe, should file at age 62 only if there are no other options," says Cornfeld. "Let's take a closer look at this situation. A man at age 62 would be expected to live for another 19 years and a woman for another 22 years. If this woman would have an annual Social Security benefit of, say, $18,000 at age 66, the benefit would be only $13,500 at age 62. That still leaves a gap of $16,500 per year to be filled from the IRA. $150,000 is not sufficient to provide that amount cash flow to life expectancy, let alone if she lives longer.

"What this person really needs is a plan B, and the earlier it's executed the better. She needs to generate more income from continuing to work (even if only from a part-time job) or needs to reduce expenses. If she waits until later in retirement, the only option is likely to be reducing expenses and doing so more severely than if she had acted earlier."

Bankrate's new article, "Working longer can brighten your retirement," shows how in one situation, working an extra four years can bump up one's annual income by 44 percent.

The bottom line, says Cornfeld, is this: "You gotta do what works for you, and sometimes that means you gotta work."

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