Why The New Retirement Involves Working Past 65

Calling all linguists and word inventors: we may need to coin a new term for retirement — or at least redefine the word.

The 16^th annual retirement survey of 4,550 full-time and part-time workers by the Transamerica Center for Retirement Studies found that 51% plan to keep working, at least part-time, in retirement,  a finding fairly consistent across age groups. The major motivations to continue working, cited by 61% of respondents? Income and health benefits.

Additionally, older workers are more likely to say they will not retire at or before age 65, with a full 82% of 60-somethings putting themselves in one of these categories.  Instead, 64% of 60-somethings plan to retire after 65 and 18% plan not to retire at all.

“Workers’ visions and expectations are so different from traditional notions of retirement where we receive a gold watch, have an office party with punch and cookies and never work again,” says Catherine Collinson, president of the Transamerica Institute and the center. She added that the new conception of retirement is “a transition from working to not working that could take place over days, weeks, months or even years.”

Indeed, younger generations may define retirement differently than older workers. Although 20- and 30-somethings are more likely to say they would retire at or before age 65 (57% and 51%, respectively), when asked about expected sources of income in retirement, the percentage of respondents who said working would provide a source of income in retirement was consistent among all age groups.

“Thirty-seven percent of respondents expect income from working to be a source of income in retirement,”  says Collinson, “thereby showing that retirement and working are not a mutually exclusive proposition.”

In fact 41% of workers envision transitioning into retirement by cutting back on hours or opting for less demanding or more personally fulfilling work.

Though many plan to work for income or health benefits, others plan to work to stay involved or because they enjoy what they do. Across all age groups, 34% of respondents gave those two reasons as their motivation, with 20- and 60-somethings being the most likely to cite these two factors.

“The 60-somethings and older are literally transforming retirement as they retire,” says Collinson. “They’re blazing new trails for younger workers, but they have their own areas of risk. Their greatest risk is not having a backup plan if they’re forced into retirement sooner than expected due to job loss or family expectations. Only one in three have a backup plan.”

Though older workers can face age discrimination or other employment obstacles such as health issues or job loss, Collinson says they — and workers of all ages — should maintain their health so it won’t preclude them from doing work. They should keep their skills up-to-date, network and meet new people. “These tips apply to workers of all ages,” says Collinson. “Staying in the workforce requires work.”

Encouragingly, despite having the challenges of student loan debt and graduating into the Great Recession, 20-somethings show signs of being big savers. (Read more on why here.) Two-thirds are saving for retirement, and they started saving at the median age of 22, compared to 25 for 30-somethings, 30 for 40-somethings, 31 for 50-somethings and 35 for 60-somethings. Part of the reason, Collinson says, is that 401(k)s and other employer-sponsored accounts are more common now than when people in their 50s and 60s were young. “And they’ve heard the word not to leave money on the table,” Collinson says, referring to the 401(k) match that some employers offer. “The other thing that’s interesting and awesome about 20-somethings, is that when we ask them about saving for retirement, more of them say they discuss it compared to the older age ranges, in part because of concerns about Social Security not being there. Also they’ve witnessed firsthand what their parents are going through.”

The other generations are saving at higher rates, although a quarter of 40-somethings, who are in their “sandwich years” juggling both kids and aging parents, have taken a loan or early withdrawal on their retirement accounts.

Despite the stress of saving for retirement, 42% of workers cite travel as their top retirement dream, with spending time with family and friends coming in at second (21%). “It’s wonderful to see that people have retirement dreams and the opportunity to travel, pursue hobbies, but they require some advanced planning and saving,” says Collinson, adding that when asked about their retirement strategies, many people have not factored in the cost of their retirement dreams.

Recommendations For Workers

1. Start saving as early as possible, and avoid taking loans and early withdrawals from retirement accounts. (If you're a freelancer, find out here how to save for retirement.)

2. Participate in employer-sponsored plans. If your employer doesn’t offer one, ask the company to establish one. (If you have debt, here's how to prioritize between paying that off and contributing to retirement.)

3. Develop a retirement strategy. Calculate what kind of income you’ll need in retirement, including healthcare needs and long-term care. If you can, get professional advice. (See the slide show below to find out how to choose a financial advisor, and read here about a new type of financial advisor specifically for people about to retire and in retirement.)

4. Learn how to invest for retirement, whether from a professional or from your own research. Be sure to check out these 10 secrets to outperforming other investors and avoid these top five investing mistakes. Also see if this retirement strategy could make your nest egg last longer. Also learn how Social Security and other government benefits work.

5. If you’re of low or moderate income, get the saver’s credit when you file your tax return. If you’re 50 or older, you can make what are called "catch-up" contributions, which allow you to put more into your retirement accounts annually than younger savers.

Recommendations For Employers

1. Extend eligibility for retirement plans to part-time workers.

2. Encourage participation in plans by auto-enrolling workers and automatically increasing their contributions.

3. Discourage loans and withdrawals by limiting the number of loans available in a plan.

4. Offer a match structure that encourages higher salary deferrals. For instance, instead of matching 100% of the first 3% of deferrals, match 50% of the first 6% of deferrals.

5. Offer accessible education around calculating a savings goal, saving and investing principles, and, for workers approaching retirement, generating retirement income.

Recommendations For Policymakers

“Existing laws and regulations and SS benefits, to a greater or lesser extent are still centered around the idea of retirement being a single point in time,” says Collinson.

1. Analyze how different benefits interact with each other, and potentially have negative financial effects on individuals. For instance, the maximum age at which someone can begin her Social Security payments is 70, but many workers plan to work past 70, and if someone makes more than a certain income, their Social Security benefit becomes taxable.

2. Expand retirement plan coverage for all workers, including part-time ones, by expanding the tax credit for employers who begin a plan.

3. Use automatic enrollment to increase default contribution rates. The current minimum default contribution rate is 3% to 6%, which implies that that savings rate is sufficient for a secure retirement. A new default could begin at 6% upon enrollment and increase to 8%, then 10%. (Find out five ways other countries do 401(k)s better.

4. Reduce leakage from retirement accounts by making the 401(k) loan repayment period longer for participants who have terminated their plans.

 5. Illustrate savings as retirement income on retirement account statements. Doing so would better educate workers about how much they need to save.