Should You Put Retirement on Hold?

One indicator our economy is still hurting is that more and more people are postponing retirement. According to the Department of Labor, those over 55 and still working have increased steadily since the recession began – 28.9 million at last count – and some surveys show more than a third of employees expect to work past age 70 or never retire.

Would-be retirees have faced a perfect storm of negative situations:

• Having to tap retirement savings early to cover bills or tide them through unemployment.
• Plunging home values diminished or erased the equity many had hoped to draw on in retirement.
• Unable to afford – or qualify for – health insurance they'll need until Medicare kicks in.
• And many boomer parents have put their own savings on hold while helping their kids struggle through the recession.

If you're hoping to retire in the next few years, consider the following:

How much will you need? Financial planners often suggest people may need 70 percent or more of pre-retirement income to maintain their current lifestyle, but it's difficult to generalize. For example, some people downsize housing or retire to less expensive areas and thus need less. Others can expect increased medical, utility and other bills to outpace earnings on their savings.

Start estimating your retirement needs by using online calculators:

• The Retirement Estimator at www.ssa.gov/estimator automatically enters your earnings information to estimate your projected Social Security benefits under different scenarios, such as age at retirement, future earnings projections, etc. You can also download a more detailed calculator to make more precise estimates.
• Check whether your 401(k) plan administrator's website has a calculator to estimate how much you will accumulate under various contribution and investment scenarios. If not, try the various retirement calculators at www.bankrate.com.
• AARP offers a retirement calculator to help determine your current financial status and what you'll need to save to meet your retirement needs.

After you've explored various retirement scenarios, consider paying a financial planner to help work out an investment and savings game plan. If you don't have a personal referral, good resources include www.cfp.net, www.napfa.org and www.fpanet.org.

Social Security issues. To make ends meet, many people begin drawing reduced benefits from Social Security before reaching full retirement (65 for those born before 1938 and gradually increasing to 67 thereafter). This can have several financial consequences:

• Your monthly benefit will be reduced by up to 30 percent. (Conversely, if you postpone benefits until after reaching full retirement age, your benefit increases by 7 to 8 percent per year, up to age 70.)
• Although many states don't tax Social Security benefits, they are counted as taxable income by the federal government. So, depending on your overall income, you could owe federal tax on a portion of your benefit. IRS Publication 915 at www.irs.gov has full details.
• If you begin drawing Social Security while still working, your benefit could be significantly reduced depending on your income. Read "How Work Affects Your Benefits" at www.ssa.gov for details. (Rest assured, however: Those reductions aren't truly lost since your benefit will be recalculated upward at full retirement age.)

One last suggestion: Once you've settled on what you think will be a sufficient retirement budget, try living on it for a few months first before retiring to make sure it actually works.