It’s one of the conversations an advisor dreads most; having to tell a near retiree that the golden years will likely be tarnished because there isn’t enough savings to continue a comfortable lifestyle. But it is a conversation that many will have. According to the Employee Benefit Research Institute’s 2010 Retirement Confidence Survey, nearly two out of three retirees reported saving less than $100,000 for retirement.
“An advisor can be a hero by pointing out that delaying retirement for even two or three years can make a substantive difference in a retirement income,” Todd Jones, Retiree Program Development Officer at the Principal Financial Group told Financial Planning. The potential benefits of delaying retirement include increased Social Security benefits, pension benefits, more time to build savings, and more time to reduce unhealthy debt, says
Jones gives this illustration: assume a prospective retiree reaches age 62 with $75,000 in retirement savings, a salary of $39,000 with 3 percent annual increases. If the client decides to delay retirement for three years, it could increase monthly retirement income by 38 percent, from $1, 120 to $1,550. This assumes an 8 percent deferral rate per paycheck with an 8 percent rate of return.
Age 62 Age 65
Retirement Savings $75,000 $103,000
Monthly Income from Savings $280 $385
Monthly Income from Social Security $840 $1,165
Total Monthly Retirement Income $1,120 $1,550
1 Assumes a 4.5% annual withdrawal rate
2 Estimates based upon socialsecurity.gov’s Quick Calculator
Not everyone will have the choice to delay retirement due to health issues or layoffs. But for those who can, working longer can go along way toward helping clients recapture their retirement dreams.