Many baby boomers would delay full retirement if they could ease into it, suggests a recent survey by Washington-based Watson Wyatt Worldwide. One out of three workers aged 50 and up would continue working longer if his or her employer offered a phased retirement program, such as shorter workweeks or flexible hours.

Watson Wyatt’s survey found 57% of workers currently in phased retirement entered into the arrangement voluntarily. Of these, 42% said they enjoyed their work and wanted to continue, while 28% admitted they needed the money.

But the situation was quite different for the remaining group that had actually retired completely from their career jobs, only to re-enter the workforce. Forty per cent of this group said they returned to work primarily because they were short of money, while only 34% returned to work because they enjoyed it, Watson Wyatt found.

Relatively few employers have established arrangements that would seriously influence older workers to delay full retirement. And the companies that have tend to be quite large. Either way, few workers seem to grasp the financial challenges ahead of them, Watson Wyatt warns.

For instance, many employers cut back or eliminate benefits for phased retirees, just as they do for part-timers. More than half reduce or eliminate life insurance benefits, while a third cut disability insurance, Watson Wyatt cautions. Government benefits such as the Canada Pension Plan can also be affected, particularly for those who were previously out of the workforce altogether or have a string of lower-income years from child-rearing days.

As a result, says Jane Mulvey, one of the study’s authors, more and more retirees may need part-time income to buttress the typical three-legged stool of retirement income — government benefits, personal savings and employer pension plans.
Increasingly, salaried income will constitute the fourth leg of retirement, she says, offering little solace to older workers who may not be able to work any longer or who didn’t start saving earlier.

The biggest fear of these people is outliving their money, the study suggests — exceeding taxes and health care, two other big concerns. For retirees, other income options include trading down to a smaller home, thereby cutting monthly expenses and freeing up some home equity, or purchasing a reverse mortgage — with all the accompanying feelings of insecurity this often produces. To help clients find out how much a reverse mortgage might yield and what costs are involved, check out the calculator at www.reversemortgage.org.

But a recent study by Minneapolis planner Jonathan Guyton suggests retirees don’t have to be nearly so frugal when cracking their nest eggs. He analysed the potential safety levels available to generate retirement income, including setbacks such as high inflation and a sharp market decline early in retirement.

To be successful, he recommends, retirees need to rebalance asset classes that have gains back to the initial position and use the cash generated to provide their income; take no withdrawals from asset classes in years in which they have losses; and limit the maximum annual income they draw down to 6% of capital or, preferably, less.

To help provide potential retirees with more practical examples and deal with the “if and when to stop working” dilemma, consider the Retirement Probability Analyser, created by Schulich School of Business at York University professor Moshe Milevsky and available for free downloading from the Society of Actuaries’ Web site (www.SOA.org).

Unlike many other retirement calculators, this tool doesn’t focus on how much money investors might need to retire but instead aims to help them estimate how long their funds might last.

The ultimate goal is to pin down what Milevsky calls the “probability of ruin,” or the year in which the well runs dry. Adjusting the variables to diminish the probability of depleting savings can provide investors with practical advice, including whether they can ever afford to stop working. IE