"When Donna Warner wanted to retire, she took a hard look at her finances. When the Rhinebeck resident was in her mid-60s, she built spreadsheets that demonstrated what would happen if she retired from her job with the Massachusetts state health department, first at age 65. Then at age 66. Then 67. And so on.
"These," she said, "were huge decisions."
Warner decided to retire at 66.
"But," she said, "I had no intentions of stopping working."
Even though she would have preferred full retirement, Warner, now 71, worked another four-plus years as a consultant in order to increase her Social Security benefit.
She is not alone among those taking careful looks about whether they have enough for retirement, especially at a time when pensions are disappearing and people are living longer.
A 2014 Gallup poll found the average self-reported retirement age in the U.S. had risen to 62, the highest since Gallup began the annual poll in 1991. In 2015, the average dropped to 60, but that was still well above the 1991 average of 57.
Gallup's survey of non-retirees' plans for retirement show similar trends. In 1995, non-retirees said they planned to retire, on average, at age 60. Twenty years later, the average was 65 after hitting a peak of 66 in 2014.
Philip Mastromarino, a 76-year-old Town of Poughkeepsie resident who owned a local gravesite monument business, retired last year because his business had slowed due to the increasing popularity of cremations..
"I am thinking about moving and getting some place where the taxes aren't like they are here right now," he said.
The cost of living, he said, is "driving people right out of Poughkeepsie and to North Carolina because they can’t make a go of it anymore."
In January, the personal finance website WalletHub ranked New York as the eighth-worst state in which to retire. Rhode Island was ranked worst and Florida best, based on an evaluation of each state's affordability, quality of life and health care.
In 2015, the Empire Center, a nonprofit think-tank in Albany, cited U.S. Census data that show New York's 50 upstate counties lost more than 14,000 people to other states, a population decline of two-tenths of one percent, between 2010 and 2014.
It's no wonder 61 percent of Dutchess County baby boomers — those born between 1946 and 1964 — and 64 percent of Gen Xers (1965 to mid-1980s) said they are anxious about living a comfortable retirement, according to a 2015 AARP survey of registered voters age 35-69.
More alarmingly, 22 percent of Gen Xers and 29 percent of boomers said they have no retirement savings account. And 25 percent of both demographic groups said they do not plan to retire at all.
"The problem starts with the lack of access to savings at work," said Bill Ferris, AARP’s New York State lobbyist.
Pensions and employer-supported retirement plans such as a 401(k) plan typically offer matching contributions. Plus, they offer the benefit of what experts say is the best tool to build retirement savings — automatic deductions from paychecks.
Once elected, automatic deductions encourage savings by taking the decision-making out of the hands of an individual.
But not every worker has access to a pension or a 401(k). AARP has been lobbying the state Legislature to create a state-sponsored savings account similar to the 529 college savings plans.
"If the state government thought that people needed to save for their children’s and grandchildren’s college education," Ferris said, "then we are asking the state government now to step in and help people save for their retirement, so they can live independently, they can live in their communities and won’t turn to government (aid programs) for help."
The most important time to save for retirement, financial experts say, is as early as possible, hopefully decades before it's time to retire.
The power of compounding — the ability of an asset to generate earnings which are then reinvested to generate their own earnings — is at its greatest over time.
Individuals over 50 can take advantage of IRS rules that allow for catch-up contributions to 401(k) plans or Individual Retirement Accounts. The rules allow those individuals to contribute up to $6,000 above limits imposed on tax-deferred income that can be set aside.
The goal, says one local money manager, should be to build a nest egg that equals eight times your projected, final salary at the time you wish to retire.
"The other thing to keep in mind as we live longer," said John Morgan of Poughkeepsie-based Marshall & Sterling Wealth Advisors, Inc., "is you need to account for health care."
"Medicare is not free, universal health care," he said.
Experts also warn of tapping into Social Security savings too soon.
Individuals born between 1943 and 1954 can start receiving 100 percent of the Social Security benefits at age 66. (People born after that will have to wait a bit longer.)
However, the benefit increases the longer a person waits. Wait just one year, and you get 108 percent of your benefit. Hang in there until 70 — the point at which monthly benefits stop increasing — and you get 132 percent.
Morgan said Social Security should account for no more than 25 to 33 percent of your income replacement.
John Ferro: 845-437-4816; jferro@poughkeepsiejournal.com; Twitter: @PoJoEnviro
Tips
- Start saving for retirement as early as possible and use automatic deductions whenever possible.
- Get a plan. Meet with a financial planner or take advantage of retirement calculators to determine whether you are saving enough. AARP offers a free online calculator at https://secure.aarp.org/work/retirement-planning/retirement_calculator.html.
- If your company offers a 401(k) program and matches your deductions up to a certain percentage, make sure you elect to set aside at least the maximum percentage.
- Set a target for your nest egg. Based on an average life expectancy, retirees typically can expect stop working after they have saved up at least eight times their final salary in retirement funds, not including Social Security.
- Ensure your investment strategy is in line with your age. Riskier, aggressive-growth stocks and funds can be used in early years. But your portfolio should begin to shift to safer investments as you near retirement age. Consult a money manager.
- Delay tapping into Social Security as long as possible. For some baby boomers, benefits begin increasing even if you wait one month after turning 66.
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