Many can't afford to retire

October 15, 2006|By Tami Luhby | Tami Luhby,Newsday

When some people hit age 52 they start contemplating retirement. But all Ron Kohn is thinking about is finding another job.

The resident of Huntington, N.Y., was laid off in June from his job as chief operating officer of a jewelry company, where he landed after closing a designer accessories business he had owned for 25 years. Though he always was a saver, Kohn said he can't afford to retire anytime soon. And it can be tough for someone his age to land a job.

"I need to work through my mid-60s," Kohn said. "I don't think I should be draining my savings at this point in my life."

More people need to adopt Kohn's mindset, financial planners say. With a retirement savings crisis looming, workers should prepare to stay on the job into their mid- or even late 60s. Retiring at the spry age of 63 - today's average - is a luxury many will not be able to afford.

But working longer is easier said than done for many in their 50s and 60s. Health problems and corporate downsizing force a significant number of people into retirement earlier than they had planned.

Many people simply cannot work into their mid- to late 60s, experts said. Some develop illnesses that prevent them from holding down jobs, while others have to care for ailing spouses or relatives.

And when older workers lose their jobs, it's much more difficult for them to find other employment, according to a 2001 federal study. About 57 percent of employees ages 55 and older retire after losing their jobs. Realistic options often involve part-time work or lower-paying jobs.

"There's a tension between the conclusion people need to work longer and the findings that often they cannot," said John Rother, director of policy and strategy at AARP.

Retirement is becoming increasingly expensive, and many working Americans are simply not prepared for it, experts said. Among the biggest problems is that people are not putting aside enough money in their 401(k), the retirement savings option of choice today, experts said.

Compounding the problem is that people have to wait longer to collect their full Social Security benefits. For instance, those born after 1960 must hold off until age 67 or they could see their payments reduced up to 30 percent, depending on when they start collecting.

On top of all this, people are living longer, meaning they will need even more money in retirement. A 65-year-old man can expect to live another 16 years, on average, compared with 13 years in 1970, according to the federal Government Accountability Office. His 65-year-old wife can expect to live more than 19 years.

Working longer can address many of these issues, said Alicia Munnell, who heads the Center for Retirement Research at Boston College. Not only will the workers collect their salaries for several more years, but they can keep putting money into their 401(k) accounts. And, most important, they can hold off dipping into their nest eggs, allowing the balances to continue to grow.

"If they work a few years longer they will be as comfortable in retirement as people retiring today," Munnell said.

Unfortunately, many people cannot work that long, employment experts said. A recent report from McKinsey & Co., a management consulting company, found that 40 percent of retirees surveyed were forced to stop working earlier than planned because they developed health problems, lost their jobs or had to care for spouses or other relatives.

"The simple `I'll just work longer' may not be true" for many people, said David Hunt, a senior partner at McKinsey.

As companies cut retiree medical coverage and traditional pensions, which often have early retirement benefits, Americans are realizing they have to keep working until they are eligible for Medicare at age 65 and until they save more.

Just over half of men and 41 percent of women ages 62 to 64 were working in March, compared with 42 percent and 28 percent, respectively, in 1990, according a study released recently by the Congressional Research Service. About 31 percent of men and 23 percent of women ages 65 to 69 were working in March, up from 26 percent and 17 percent, respectively, in 1990.

Tami Luhby writes for Newsday on Long Island.

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