Nest Egg

It set the age at 65 not because that’s the threshold of old age but for practical reasons. With sky-high unemployment rates, the government wanted to encourage older individuals to retire so younger people could find jobs. If the age were lower, there might be so many retirees that the Social Security payroll tax would have to be unacceptably high to support them. Today, the age at which full benefits become available is gradually increasing and is determined by the year you were born. Someone born in 1943, for example, is eligible for full Social Security at 66, while someone born in 1960 or later will be eligible at 67.

For several generations, Americans confirmed that premise by retiring at younger and younger ages. Many moved to warmer climates or retirement communities such as California’s Sun City to golf, play bridge and relax. They were often motivated to exit the workforce by pension plans that rewarded them for leaving their jobs early. Companies wanted them out partly because of another premise underlying the American view of retirement: that people 65 and over should stop working because they’re no longer as productive. Studies have repeatedly disproved that myth.

None retired at all. Until physicist Albert Einstein died at the age of 76, he continued to make public appearances, speaking on issues such as the threat of nuclear warfare. When hospitalized unexpectedly with his last illness, Einstein took along a draft of a speech he expected to give. Thomas Edison, inventor of the phonograph, the movie camera and electric lights, was working on a natural substitute for rubber when he died at 84. Architect Frank Lloyd Wright continued to design buildings until he passed away at 91. Boomers may be looking to these men as role models. On surveys done in recent years, more than 70 percent of boomers have said that they expect to keep working past the usual retirement age—and that was before the recession of 2008 shrank nest eggs by as much as 40 percent, forcing even those who were eager to retire to remain on the job.

To maintain your standard of living, you will need up to 80 percent of what you are earning before you stop working. You might need less if you decide you’re ready for a simpler (less expensive) life after you fully retire. If you plan to continue working indefinitely, keep in mind that you will still need a substantial nest egg because health problems can sideline you unexpectedly. Something for couples to note: on average, a woman’s income is cut in half if her husband dies, but her household expenses remain at about 80 percent of what they were while he was alive.

In the mid-1980s Congress abolished mandatory retirement for all occupations except for a few where the demands of the job seemed to justify an age restriction. Firefighters, people in law enforcement, air traffic controllers and commercial airline pilots still face an age limit, though some argue that such restrictions are based on stereotypes about aging. A 2009 study by researchers at the University of Illinois at Urbana-Champaign pitted older, experienced air traffic controllers against younger ones. A number of the more senior individuals were former controllers past 56, the mandatory retirement age for that occupation. On tasks that simulated the complexities of air traffic control, the older individuals performed at least as well as their younger peers. The researchers suggest rethinking mandatory age limits, noting, “Workers should get and keep jobs on the basis of their ability, not their age."

Credit card debt has increased dramatically among older Americans, many of whom are carrying the problem into retirement. More than half—56 percent—of retirees who responded to a 2010 survey acknowledged that they were in debt when they retired, and while some were referring to home mortgages, even more owed money on their credit cards. More than 75 percent said they charged medications, medical bills and funeral expenses, according to CESI Debt Solutions, the national nonprofit organization that commissioned the survey. Financial experts say it’s a good idea to pay off credit cards before you retire because afterward you may not have enough income to pay down what you owe.

Since the mid-1980s, the proportion of individuals who continue working after 65 has gradually increased, even during the Great Recession. In January 2012, nearly 17 percent of individuals 65 and over had jobs. That included almost a third of Americans between 65 and 70 and almost one in five of those between 70 and 75. The trend seems likely to continue. Boomers have been telling pollsters for years that they expect to work longer than previous generations. In addition, the recession vastly increased the number of older people who want to stay on the job and upped the number of retirees trying to get back into the job market.

It makes a huge difference. If you start early, you can take advantage of the power of compound interest. With it, you not only earn interest on your money but interest on the interest itself as it accumulates. Say you start with $5,000, with 5 percent in compound interest annually (hard to find in 2012, but not impossible if you look beyond the savings accounts that banks offer). After one year, you’ll have $5,250. At the end of the second year, your money will have earned 5 percent of $5,250, increasing your nest egg to $5,512.50, and so on. If you save $5,000 at 5 percent at age 25, you’ll have more than $35,000 by the time you’re 65, even if you never add another nickel to the account.

But at a time when many people are losing their jobs, and it’s not easy to find a new one, three months isn’t long enough. Financial guru Suze Orman advises accumulating enough for more than eight months. To calculate how much you need to save, figure out what you spend per month, not just for necessities but for everything, and multiply that monthly amount by eight. Create a separate account for these savings so you’ll be less tempted to dip into them for nonnecessities, such as a vacation. An emergency fund is intended to see you through a period of unemployment, but it can also help with unexpected medical expenses or car repairs. The money should be easily accessible, perhaps in a money market fund or CD (certificate of deposit).

It involves planning what to do with your life. After all, if you leave the job market in your mid-60s and live to be 85, you’ll have spent one-fifth of your life in retirement. You could just relax, but you could also look for ways to make this phase of your life more meaningful. You could “retire” but continue in your field as a consultant, find a job in a new field or start your own business. You could pursue a passion for acting or music that developed early in your childhood. You could earn a degree or invest your experience in volunteer work. If you plan ahead, the options are many and truly exciting.