Frozen pension plans, disappearing retiree health benefits, higher ages for full Social Security benefits and inadequate retirement savings are all good reasons to stay on the job.
| Row 0 - Cell 0 | Six Ways to Build Your Retirement Savings |
| Row 1 - Cell 0 | How Working Longer Adds Up |
| Row 2 - Cell 0 | The Cost to Crack Your Nest Egg |
In fact, the Employee Benefit Research Institute's latest Retirement Confidence Survey shows that workers of all ages plan to retire later, on average, than did workers of a similar age a decade ago. The percentage of people planning to retire at 66 or older jumped from 9% in 1998 to 30% in 2008.
But good intentions and reality sometimes collide. That's particularly true when an employer decides to downsize its workforce and offers older, higher-paid workers incentives to retire early.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
When Verizon announced that it was freezing its pension plan two years ago, many longtime employees feared that the value of their pensions might decline if they hung around. Some decided to quit early and cash out their retirement accounts. But John Brennan, who was 57 at the time, knew that he couldn't afford to retire that young. He had just paid for a wedding for one daughter and was still paying off college loans for the other.
Brennan's financial adviser, Ken Roberts, of Harbor Lights Financial Group, in Manasquan, N.J., asked him one important question: Do you enjoy your job? If you do, Roberts advised, stick it out a few more years and max out your retirement contributions. "Your 401(k) is the first and best place to accumulate money, and if your company offers a matching contribution, it is virtually a guaranteed 100% rate of return on your cash flow," says Roberts.
Let's say you earn $100,000 a year, and your company matches 50 cents for every dollar you contribute to your 401(k) plan up to the first 6% of pay -- the most common matching formula. If you contribute $6,000, your company will kick in $3,000 for a total of $9,000.
If you're in the 25% federal income-tax bracket, your $6,000 contribution reduces your paycheck by only $4,500 but your account is worth $9,000 at the end of the year -- a 100% return on your investment, says Roberts. Your returns can be even higher if you factor in investment gains and savings on state income taxes. The higher your tax bracket, the bigger your return.
Of course, if you don't enjoy your job, consider retiring early and looking for something else. "You may not make as much money as you're earning now," says Roberts, "but even if you earn half as much, combine that with your retirement savings and you might be able to make the numbers work."
Brennan, an engineer who had nearly 30 years on the job at the time his pension was frozen, decided to stay at Verizon. Now he's glad he did. His pension balance has actually increased a bit, and he continues to contribute to the company 401(k). He expects to work another two years until he is 62. His wife, Georganne, plans to work as a school nurse for a few more years until she qualifies for a pension.
So are the Brennans on track for a comfortable retirement? "I think we're in pretty good shape," says John.
NEXT: SAVING IN A BEAR MARKET
SEE ALL NEST-EGG WOES
No. 2: Lack of Focused Strategy
No. 4: Little Savings for Retirement
No. 6: Saving in a Bear Market
HOME: Catch Up on Your Retirement Savings
-
403(b) Contribution Limits for 2024retirement plans Teachers and nonprofit workers can contribute more to a 403(b) retirement plan in 2024 than they could in 2023.
-
SEP IRA Contribution Limits for 2024SEP IRA A good option for small business owners, SEP IRAs allow individual annual contributions of as much as $69,000 a year.
-
Roth IRA Contribution Limits for 2024Roth IRAs Roth IRA contribution limits have gone up for 2024. Here's what you need to know.
-
SIMPLE IRA Contribution Limits for 2024simple IRA The maximum amount workers at small businesses can contribute to a SIMPLE IRA increased by $500 for 2024.
-
457 Contribution Limits for 2024retirement plans State and local government workers can contribute more to their 457 plans in 2024 than in 2023.
-
Roth 401(k) Contribution Limits for 2024retirement plans The Roth 401(k) contribution limit for 2024 is increasing, and workers who are 50 and older can save even more.
-
Is a Medicare Advantage Plan Right for You?Medicare Advantage plans can provide additional benefits beneficiaries can't get through original Medicare for no or a low monthly premium. But there are downsides to this insurance too.
-
What You Must Know About the Different Parts of MedicareMedicare Medicare can be complicated but we've got you covered. Here is a quick guide to the different benefits provided through each part.
