When we meet with employees in our 401(k) plans and ask them, “When would you like to retire?” they often to refer to age 65 as a general targeted date of when they think retirement is supposed to happen. In order to demonstrate the reality of retirement by the age of 65, we utilize calculators, graphs and other tools to see if they are actually on track to accomplish those goals based on their current balance, saving rate and estimated rate of return. For the majority of employees, once we run the numbers, they are hit with the reality that they are going to be well short in replacing a percentage (usually 70-80%) of their current monthly income for retirement by the age of 65. What is the solution? Usually it is saving more and retiring later.

Where did the retirement age of “65” come from? 

In 1889, German Chancellor Otto von Bismarck introduced the retirement age of 65 at a time when the average life expectancy was well below that. Over the past 127 years just about everything has evolved and changed, yet we are still using age 65 as our estimated retirement age. Every day 8,000 Baby Boomers are reaching age 65. One out of every 5 people over the age of 65 are still working and that number is expected to continue to grow.

An aging workforce

What we find in our day-to-day interactions with our clients is that most are still working because they have to. They are under saved and do not have the financial freedom to decide when they would like to retire or maybe work part-time.  Some employees tell us they are going to “work forever.” One of the issues with that is that they need to be “employable forever.” Employers with an aging workforce are faced with higher healthcare costs, higher salaries and potentially lower productivity than having a younger capable employee. We understand these are not fun conversations to have with employees telling them they are getting older, more expensive and potentially less productive than they once were but they need to realize the reality of how they are viewed from their employers’ perspective.

When looking to retire, 70 is the new 65

With substantial increases in life expectancy and the lack of current savings we think the average worker should plan to retire at age 70. We believe that is a realistic expectation for an employee who is in good health and plans to be active in retirement and live well into their 80s or 90s. A viable 401(k) plan being utilized appropriately should allow a person to save enough so that they can secure the retirement income they desire for them and their families.

Mark Laughton