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Jim Lentini: Do I retire or continue working?

Posted: May 4, 2009 6:12 p.m.
Updated: May 5, 2009 4:55 a.m.
After many years of working, most people plan, and work, toward that special date in the future - the date when they can put their working lives behind them.

But today, many are asking themselves if, with current economic issues, they will be able to retire. How many more years will they have to work before they can retire?

These are difficult questions in light of the falling values of most retirement plans. And, to add to all our concerns, we don't see many solutions that seem viable coming out of Washington, or Sacramento.

Fortunate for many retirees' from government jobs, they can look forward to health-insurance benefits until Medicare kicks in at age 65, and pension plans with cost-of-living increases.

But, for workers without these two valuable benefits, most need to work until they qualify for Social Security and Medicare. And, given that the market fell 56 percent between Sept. 30, 2007, and March 6, 2009, baby boomers are facing increased pressure to work longer. That is especially true for those who have only a 401(k) or an IRA retirement plan.

A recent article in U.S. News & World Report stated that even before the recession began, Americans should have been considering the possibility that they might have to work past the average retirement age of 63.

Longer life expectancy means you will need more retirement income. Now, it will take the typical 55-year-old employee two extra years in the workforce simply to recoup the 2008 market losses, according to the consulting form Hewitt Associates.

Other studies have come up with similar numbers. The Employee Benefit Research Institute calculated that employees with between 20 and 29 years on the job will have to work an extra year and 10 months to neutralize retirement account losses.

If workers panic and pull their remaining cash out of the market, it will take even longer for them to recover - an additional two years and four months, according to EBRI. Continued employment allows seniors to save more and reduce the number of years over which their savings must be spread.

Delaying receiving your Social Security benefits can also be rewarding. Each year a worker delays claiming Social Security between age 62 and 70 will increase his/her benefit.

Social Security is calculated based on your 35 highest-earning years in the work force. Each year you work in your 60s replaces a lower-earnings year from your 20s in the calculation - assuming you make more money now than you did in your 20s. Benefit payouts further increase by approximately 8 percent for each year you delay claiming between ages 62 and 70.

Maximizing your initial Social Security payment will also increase the dollar amount of your annual cost-of-living increases. Also, if you wait to normal retirement age or longer, you can earn as much as you like without any penalty of benefits over the current threshold limit.

It can also be beneficial to continue working and keep your employer-sponsored health insurance until Medicare eligibility at age 65. Less than a third of large companies provided retiree health benefits in 2008, according to a Kaiser Family foundation survey, and just 4 percent of small firms offer them.

The average cost of premiums for retirees under age 65 with employer-provided coverage is $13,308 per year. Those without employer-subsidized plans will generally pay more, especially if they have health problems.

Fortunately, in California, those who are turned down for individual health coverage will be eligible to apply for Major Risk coverage through the State sponsored program.

Jim Lentini is president of Lentini Insurance & Investments, Inc. He can be reached at (661) 254-7633. His column reflects his own views and not necessarily those of The Signal.


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