Contrary to what some retirement readiness studies have found, 70 is not the new 65 when it comes to the “new normal” age for retiring, and many will have to either work well into their 70s and 80s in order to have adequate retirement income, according to EBRI researchers, or possibly tap into their home equity with a reverse mortgage.
This conflicts with a Center for Retirement Research study released in June saying that 86% of American households would be able to comfortably retire with only a five-year delay.
Waiting to claim Social Security benefits, saving longer, allowing interest on those savings and other investments to compound, and financing fewer retirement years were named as ways working until age 70 could significantly improve retirement readiness, the CRR report said.
But it’s not that simple, and it will take a lot longer, says Jack VanDerhei, research director for EBRI and author of the report.
“You’re not going to magically be fine if you work a few more years,” he says.
Working into their 80s may not be physically possible for some, though, while others may simply not want to do so, and this could result in more households opting to access their home equity as a source of funding through a reverse mortgage loan, says the researcher.
“I do think there will be a growing need [for reverse mortgages],” VanDerhei told RMD, although it’s unknown whether this will translate into a growing trend toward increased reverse mortgage usage, he said.
What the CRR didn’t factor into its report is the “prohibitively high” costs of long-term skilled nursing care, which isn’t covered by Medicare, and is only covered by Medicaid in some cases. VanDerhei included the probability of nursing home expenses in his report, leading him to a much different—and less optimistic—conclusion.
While it would be “comforting” from a public policy standpoint to assume working that extra five years to age 70 is enough to attain retirement readiness, says EBRI, it may be a “particularly risky strategy, especially for the vulnerable group of low-income workers.”
Results from a 2011 study indicate that the lowest pre-retirement income quartile would need to defer retirement to age 84 before 90% of the households would have a 50% chance of success.
The report details the different baselines used by the Center for Retirement Research and the EBRI, which led to the disparate conclusions.
“Different methodologies will produce different results, but both studies agree that working longer will help improve retirement security,” said Andrew Eschtruth, communications director for the CRR, in an email to EBRI.
Check out the EBRI study findings.
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