Working Until 70 Could Ease Retirement Finances

July 7, 2012 — -- Many Baby Boomers head to work each day and wonder, "So what's the number?"

How many more years do they need to keep working? It turns out that if many of us could just keep working until age 70, we could be OK in retirement, according to a new study.

Sure, 70 isn't the magic number that most people want to hear. Even so, knowing any number might be reassuring, if you're worried that you'd never be able to stop working.

"My intention was to make people feel better," said Alicia Munnell, director of the Center for Retirement Research at Boston College.

After the Great Recession, more people fear the idea of retirement. But Munnell said many people will be able to retire — if they work a bit longer. "It's better to stay with your full-time job if you can," she said.

The trick is to delay dipping into savings as long as possible.

Munnell, a retirement expert, spoke to me by phone. I had to bring up a topic that's near and dear to many salaried auto retirees. What about those lump-sum offers?

A lump-sum payment in retirement is being offered to salaried retirees at General Motors and as early as August to many salaried retirees at Ford. (Not yet to hourly folks, but some say that could happen one day, too.)

She didn't mince words, calling the idea "terrible." She said she's hoping that retirees "don't fall for the trick" of accepting a lump sum.

Munnell said she can understand why companies want to unload longevity risk and investment risk from their books. But she said generally retirees are better served by the security of a monthly pension check than trying to invest a lump sum on their own.

"It's undoing all the good aspects of a well-designed retirement system," she said.

To have the automakers offer a lump sum when retirees are already receiving payments, she said, is very upsetting and seems like bad public policy to her.

No pension plan is perfect, she noted, but retirees do benefit from a steady stream of income.

Are you ready?

The National Retirement Risk Index, produced by the Center for Retirement Research at Boston College, examines household wealth and retirement readiness. The center receives sponsorship from Prudential.

Research shows that only about 30% of households are prepared for retirement at Social Security's earliest retirement age of 62. What's key is that more than 60% of those households are covered by a defined-benefit plan or a traditional pension.

Research for the National Retirement Risk Index indicates that about 49% of today's working households would be able to afford to retire at age 65.

The unsettling aspect of the study indicated that about 51% of working households are at risk if they retire at 65.

In general, people have two options if they're not ready for retirement. They can work longer or save more. "I don't think people can save a lot more," Munnell said.

Working people have a lot of expenses, including raising children, saving for college and paying for cars, mortgages and health insurance.

The study shows about 86% of households would be prepared for retirement at age 70.

How Social Security payments are calculated in retirement plays an important part of the work-longer strategy. A Boomer who starts taking Social Security benefits at age 70 would have roughly a 75% larger base benefit than if the same person started drawing Social Security retirement benefits at 62.