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Retirement age – the big unknown…

12 Jun

“When am I going to be able to retire?” is a question that is on the mind of many Americans, often keeping many of us up at night and giving many investors serious amounts of heartburn every time they look at the balance of  their 401K plans.

The current economic environment coupled with the uncertain future solvency of Social Security in the US, is causing more and more of us to question when are we going to be able to retire, if at all. The vision of leisurely afternoons on the golf course is beginning to look like a chimera…

The reality is not terribly encouraging. Just in the past decade we lived through the Great Recession, the global financial crisis, unemployment figures reaching double digits and we witnessed our houses lose value due to the burst of the real estate bubble. So what are we looking at – little, if any, equity in our homes; unpredictable value in our 401Ks and possibly some savings. The stock market is still below the levels reached in 2001 and we now have more than 11 years of inflation since then. In efforts to boost the economy, the Federal Reserve is keeping interest rates abnormally low and will not even begin raising them until 2014. In the equation of retirement, with variables such as housing and the volatile financial markets, the age of when most Americans will be able to retire is becoming the big unknown. With all of that in mind more and more of us are realizing the solution is only one – we will have to work longer. According to the latest Gallup poll, the average age at which Americans expect to retire has been progressively climbing up since the mid-1990s, and has now reached 67 years.

Still, younger workers seem to believe that things will eventually work out better than their older peers. In mid-April, Gallup conducted its annual Economy and Personal Finance survey, which concluded that people who are currently under the age of 40 expect to retire at age 65, compared to those who are over 40, still working and expect to retire not before 68. Why the difference? The younger population has the luxury of time. And although no one can predict the direction of the housing market or the global financial markets, those under 40 have at least 20 years to make changes in their lives; changes that are in their own control. Such changes could be efforts to increase the savings rate, pay off debt or rebalance their 401K portfolio. And most importantly just wait and hopefully weather the storm.

Those over 50, who don’t have time on their side can rely on different methods to achieve their retirement goals. Some of those include downsizing, taking advantage of products such as annuities that have contractual guarantees to pay income for life, or cash value life insurance and market linked CDs (which I recently discussed in details on this blog) or simply choosing a second career that they love. This will give a new flavor and better outlook on the possibility of having to work longer.

And finally, even if the retirement age gets pushed further out for most of us, statistically the odds are in our favor for enjoying some golden years since the average life expectancy in the US is now 78 years.

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