The virtue of patience before retiring

Tom Foster

By Tom Foster
E. Thomas Foster Jr. is head of strategic relationships for retirement plans for MassMutual.
Posted on Dec 12, 2018

The origin of the proverbial phrase, “Patience is a virtue,” can be traced to a poem called, “ Piers Plowman ”, which defined patience as the ability to deal with difficult circumstances in the face of delay. Fifteen hundred years after the poem was written, the sentiment remains instructive as Americans decide when to retire.

Americans on average say they plan to retire at age 62, two years sooner than they did five years ago, according to MassMutual’s 2018 State of the American Family (SOAF) Study. Four in 10 (40 percent) respondents said they intend to retire before age 60, up from 32 percent five years ago, while only 22 percent of respondents now expect to retire after age 65, down from 30 percent in 2013, according to the SOAF study.

The greater optimism on the part of study respondents about their ability to retire at earlier ages potentially reflects a spike in 401(k) balances, according to the research.

Yet, fewer people indicate they have calculated how much income they need to retire. In 2018, 56 percent of respondents had done the math compared to 61 percent in 2013, the study found.

If you drill deeper into the data, it appears that many Americans may have a false sense of security when it comes to retirement.

For instance, the average 401(k) balance was $75,385 in 2016 compared to $72,383 in 2013, according to the latest data available from the Employee Benefit Research Institute, Consistent 401(k) Participation Leads to Higher Account report.1 EBRI reports that “consistent savers,” those who continued to save throughout the period as measured, had average balances of $167,330 in 2016 compared to $121,152 in 2013.

But to be fair, older Americans typically have more money saved for retirement. The Economic Policy Institute reported that families aged 56 to 61 had an average of $163,577 saved, which would generate an average monthly income of $1,329,2 Not what you would call high living, even with Social Security included in the mix. Perhaps a little patience about when it’s best to retire could help.

While Americans’ confidence about being ready to retire at a given age has risen slightly, to 47 percent in 2018 from 45 percent in 2013, there is some doubt, according to MassMutual’s SOAF study. Confidence in having enough money to last throughout retirement has slipped, with 35 percent of respondents in 2018 worrying about outliving their retirement savings compared to 33 percent in 2013, the study found.

Fortunately, not all is lost if savers can exercise some patience. Financial advisors may help clients and retirement plan participants overcome these challenges by encouraging them to pull as many available levers as possible:

Maximize deferrals . Workers who have access to a 401(k) or other defined contribution plan can save up to $18,500 annually in 2018 and $19,000 in 2019. Even over a short time, those savings may quickly add up, especially with positive investment returns.

Use the catch-up provision . Those who are age 50 or older can save an additional $6,000 annually in a defined contribution plan for a total of $24,500 in 2018 and $25,000 in 2019.

Take advantage of any employer match . While not all employers match employee contributions, many do. If a retirement saver cannot afford to contribute the maximum or close to it, then he or she should consider saving enough to secure the available maximum in matching contributions.

Save pre-tax . Contributing pre-tax dollars to a 401(k) or similar plan can reduce the saver’s taxable income. Doing so may help make it more affordable to save in their employer’s retirement plan.

Work longer . Many older workers have already come to the conclusion that they will need to work longer. With the U.S. unemployment rate hitting 20-year lows this year, the prospects of working longer or finding employment are brighter.

Put off taking Social Security . Postponing Social Security at age 65 or later can boost future payments by 8 percent for every year the income is deferred until age 70, the Social Security Administration reports4. Few investment strategies net such a return, never mind one with a guarantee.

Taking these steps – particularly working longer and putting off Social Security – do demand patience and taking a longer-term view. But those who do may potentially improve their ability to live more comfortably in retirement without waiting a millennium to do so.

E. Thomas Foster Jr. is head of strategic relationships for retirement plans for Massachusetts Mutual Life Insurance Co. (MassMutual).

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1 Employee Benefit Research Institute, “Consistent 401(k) Participation Leads to Higher Account Balances,” Nov. 6, 2018.

2 Economic Policy Institute, “The State of American Retirement,” March 3, 2016.

The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own, and do not necessarily represent the views of MassMutual.