We have heard from both clients and radio listeners who have considered, or are considering, delaying retirement. It is not surprising many workers are hesitant to make the life change. The emotional factor of retirement is different for many people. Not just from a financial viewpoint, but because many people define themselves by their careers. Even in the best economic times, the decision to retire is a very difficult one. Nowadays, you add in the terrible stock market, low interest rates on fixed-income securities and depressed home prices, we certainly understand why people are choosing to delay retirement.
In a Dec. 11, 2010 article in The Wall Street Journal, it was reported that 1.6 million Americans ages 51 to 65 have put off retirement. Recent studies estimate that the labor participation rate among 51- to 65-year-olds is 2.9% higher as a result of the financial crisis. Despite the markets’ recent highs, many portfolios are still worth less than they were in 2006.
Since August 2010, the unemployment rate for people 55 and older has averaged 7.3%, which is the highest level since 1948. However, this is still below the national average. At 65, Americans are eligible for Medicare benefits, and for those born between 1943 and 1954, full retirement age is 66 at which workers can receive full Social Security benefits. Many may choose to continue working either full or part-time to supplement Social Security income. Postponing retirement may make economic sense for many people.
We suspect that many people are delaying retirement because they are fearful. It is easier to continue working than it is to talk with a financial adviser and hear the financial adjustments needed to retire in the lifestyle you want. Retirement is reaching a point in time when you can decide how you want to spend your day. It is why people work and save their money. At the end of the day, it is all about being in a financial position to make your own decisions. We believe that people who liked their jobs or careers before the recent crash feel that working is not such a bad deal. Those who hated their jobs are going to retire as soon as they can.
We also suspect if you poll those who are who are delaying retirement, few have had a financial plan laid out by a registered investment adviser, detailing their life expectancy, current situation, health insurance needs, long-term care needs, savings and truly determined what changes need to be made so they can retire comfortably.
While the economy is recovering, investors may be recovering more slowly because of financial decisions made during the recession. It is a situation we have seen time and again. In 2007, when the market started going down, investors started moving out and into bonds. As soon as bonds went down, investors moved into gold. Now that stocks have begun to rise again, investors want back in to stocks, but many have missed the 60% gains from the bottom. Even worse, we have seen investors sell out of stocks completely; moving money into 20- and 30-year bonds paying 2% to 3%. When bond prices go down, they will sell again. In these cases, investors cannot recover from such decisions.
We feel these investors need to sit with a registered investment adviser to learn what they need to do to recover from their past mistakes. Registered investment advisers have a fiduciary duty to the client. Decisions must be made in the client’s best interest. Brokers have a fiduciary duty to the firm they work for. They merely have to sell you suitable investments. What often drives them are the commissions they receive for selling the firm’s products. Registered investment advisers look after the assets on behalf of their client, and must act in that client’s best interests.
If you can sit with someone who can guide you through the process of organizing your finances for retirement, it is not as scary as going at it alone. You may also find you can retire sooner than you anticipated. Ideally we like to begin planning for retirement at 55 if someone wants to retire at 65. Financial mistakes made in your 40s and 50s can significantly set someone back, so the sooner you can sit with an adviser the better off you should be. If you would like to talk to one of our experts about your retirement, give us a call at 770-429-9166 or e-mail at [email protected].
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