The data is in, and it’s heartening to learn that American workers are starting to make the right moves to save their own retirements.
You could take the pessimistic view, of course, and say they have no choice. But you always have a choice, even when you don’t make it. In the case of American workers and retirement, it appears that inertia is losing.
New findings from the Center for Retirement Research at Boston College show that U.S. workers near retirement age are not ransacking Social Security early and abandoning the workforce. Rather, they are staying in longer and delaying benefits.
The idea that droves of workers are taking benefits at 62 is a statistical illusion, points out Alicia Munnell, directer of the center. There are many more people hitting that milestone, but not a greater percentage of them punching out at work.
In fact, completely the opposite. “Of eligible workers turning age 62, the share claiming benefits at that age fell from 56.0 percent in 1996 to 35.6 percent in 2013 for men; the comparable decline for women was 62.8 percent to 39.5 percent,” the center’s researchers found.
That squares with advice from Charley Ellis, a key member of the Investment Committee of my own firm, Rebalance, and a longtime advocate of sensible retirement investing.
Ellis is a guy you should listen to. He is a former chairman of the Yale University endowment and a former board member at Vanguard Group, as well as the author of the retirement investing classic, Winning the Loser’s Game.
He recently published a new book on the retirement problem, entitled Falling Short: The Coming Retirement Crisis And What To Do About It. The book was co-authored by Munnell.
What should you do about it? Here’s a three-point plan anybody can put into practice starting today. You undoubtedly will benefit for years to come just by doing these three simple things to fix your retirement:
1. Keep working
Yes, keep your job. You don’t have to keep pounding away at a job you hate or even work full-time, but you will need to keep a suitable income going for a few years longer. If you know your cost of living is too high, downsize early.
But don’t quit your job at the same time. Keep it, segue into consulting, take a demotion — whatever you need to do to line up a steady income with your cost of living. Do this not to “keep busy” but to keep putting money away in your 401(k) or IRA.
If you don’t earn much, do it to avoid spending the retirement savings you have. You’ll want saved money to compound a while longer and, taken later, your Social Security check will be larger as well.
2. Save more
Yes, save more money. For some folks, that might mean saving just to get out of debt. Pay down mortgages, eliminate credit cards, erase consumer loans. Once you’re even, build a cash cushion.
It won’t be easy, I know, but saving will be nearly impossible if you go on a fixed income with unsecured debts looming in the background.
3. Watch costs
Not just your cost of living, but your cost of investing, too. It’s perfectly fine to hire a trusted advisor for fee-only or hourly planning. Paying fees for investment help can be a winner, too, but only if those fees make sense. The research, done over decades by Ellis and others, shows that the more you pay for investment help, the worse you tend to do.
The reason is not surprising: Active managers have a very hard time beating the indexes because it’s hard to do, but also because their fees have to be subtracted from your retirement investment returns. Over years, costs compound, too.
You can retire with more if you take steps early to fix your retirement — as millions of Americans clearly have decided to do.