Actions of Saving More and Working Longer Win Out Over Spending Less

When it comes to retirement, Americans are far more inclined to work longer or save more than accept a lower income in retirement. A recent study by Willis Towers Watson found delaying retirement was the top action Americans would take in order to offset a retirement shortfall. The study showed 52% of employees age 50 or over would delay retirement in order to overcome inadequate savings for retirement. Employees under age 50 are split between the actions of saving more (44%) and working longer (45%).

Source:  2015/2016 Global Benefits Attitudes Survey U.S. from Willis Towers WatsonThe average U.S. employee expects to retire at age 65, however, they anticipate a 50% chance of working until age 70 according to the survey. One in four surveyed believes they will work beyond age 70.  Of the 25% planning to work until age 70 or later, only 13% are unworried about their financial situation, while the remaining 87% plan to retire later due to financial struggles or worries about their financial situation.

Silver’s What If is a great resource to leverage when leading clients through their financial future and exploring the impact of their possible actions. You can quickly make changes to reflect working longer, saving more, and/or lowering income in retirement to find the combination that works for your clients and their financial future.

For example, let’s look at a case with a married couple, currently ages 50 and 49 who are projected to have a shortfall in retirement. The left side shows the client’s original retirement projection, and the right shows the substantial impact of working two additional years on their retirement projection.

Delay Retirement

To achieve the same retirement projection Monte Carlo result by increases to savings without delaying retirement, the clients would have to maximize their Roth IRA contributions, amounting to a $5,000 increase and bump their qualified plan contributions by a total of $9,000, making a $14,000 total annual increase to savings in today’s dollars for the next 15 years until they reach retirement.

Increase Savings

Last, if we explore the least popular action of reducing income in retirement.  The clients would need to cut spending by over $12,500 per year in today’s dollars to achieve the same Monte Carlo result with no changes to their retirement ages or saving amounts.

Reduce Retirement Income

Working through the impact of the actions your clients can take will allow you discover the combination that is best fits your clients and their financial future.