section 1 - The American College Online Learning Center

(1) Note that 38% of second income quartile that did not have adequateincome at age 65 have sufficient income at 69.(2) Note that 44% of third income quartile that did not have adequate incomeat age 65 have sufficient income if retirement is deferred to age 69. 3(3) Planning Point: Delaying retirement has a positive impact for all groupsbased on income adequacy.2. Retirement readiness indexa. In a 2009 report by McKinsey called “Restoring Americans’ Retirement Security,”they identified what they called the retirement readiness index (RRI).(1) In their model, an RRI of 100 is required to maintain the same lifestyle.(2) An RRI of 80 requires a reduction in the standard of living — reducingdiscretionary spending.(3) The average American has an RRI of 63.b. The report recommended four ways to improve retirement readiness, includingretiring later.c. The report indicated that the impact of retiring four years later on the averageAmerican improves the RRI by 23 points!3. Impact of working longer on an individual’s retirement securitya. Additional full-time work shortens the retirement period.b. Additional full-time work allows for increases in Social Security (at least up toage 70).c. Additional full-time work lowers health costs. Health insurance coverage can bequite expensive between retirement and eligibility for Medicare at age 65.d. Additional full-time work increases defined-benefit plan benefits(1) Additional benefit accruals — higher wages(2) Actuarial increases for deferrale. Additional full-time work increases defined-contribution plan benefits4. Sample calculations(1) Additional contributions(2) Deferring withdrawal means additional earningsa. Using the Smart Money Retirement Calculator (available at smartmoney.com),review the following example using these assumptions:(1) Return on investments: 7 percent preretirement, 6 percent postretirement(2) 2.7 percent inflation rate(3) 19 percent effective tax rate(4) Assume life expectancy is age 90.b. Take a 58 year old single individual with $100,000 of income, assets of $500,000,saving 20% of earnings each year, and needing 85 percent of preretirementincome in retirement.(1) Retire at age 65 and calculator identifies an income shortfall at age 81.(2) Retire at age 66 and calculator identifies an income shortfall at age 86.3. EBRI Issue Brief #338 “The Impact of Deferring Retirement Age on Retirement Income Adequacy.” June, 2011.3.5