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Retire? Not just yet, more and more say

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Somehow, and I honestly don't know how this happened, I crossed the mid-century mark a couple of years ago, which immediately and involuntarily qualified me for membership in AARP, the organization formerly named the American Association of Retired Persons.

It's bad enough having 50 candles on the birthday cake, figuratively speaking. But that AARP letter left me in a state of confusion. Should I feel upset about the reminder of my age? Or embarrassed because I'm nowhere near ready to retire?

The fact is that even after crossing the 50 barrier, any thought of retirement seems far in the horizon. And I'm not alone in that view. In the past 10 years, the retirement age has steadily increased. And the trend seems to be accelerating.

In California last year, 26.5% of people between the ages of 65 and 69 were still working, according to a report by the California Budget Project, an economic analysis group in Sacramento.

In 1995, 19.6% of that age group were working, and in 1989 it was 18.5%. From the late 1970s through the early 1990s, fewer than one in five workers past 65 stayed on the job. But that number has jumped to more than one in four today.

Many workers are staying on because they actually like to work.

"The good news is that we're living longer, and we're generally healthier than we used to be, which means that we're physically able to work longer," says Jean Ross, the group's executive director.

But 40% of the post-65 workers are staying on the job because they feel they haven't socked away enough money for retirement. And judging from the nation's mounting stack of unpaid credit card bills, past-due mortgages and rising health care costs, that number will be growing.

Since spring 2005, Americans have had a negative savings rate, meaning that we've been spending more than we're making, with the aid of credit cards and home-equity loans. That is by far the longest period of negative savings the nation has endured since the Great Depression.

In 2005, we spent $35 billion more than we made. Last year, that figure more than doubled to $92 billion.

Peter Morici, an economist with the University of Maryland, says much of the debt spending has to do with the dramatic rise in housing prices over the past several years. The spike in home values led consumers to act as if they had more money in the bank than was actually there. And home equity loans helped fuel the buying binge.

Don't pin all the blame on the consumer. One reason our credit card bills have been rising is that inflation, too, is on the rise, sometimes exceeding the growth of our paychecks.

In San Diego, for instance, the median income has risen 8.2% since 2003. But consumer prices have risen 9.7%, forcing people to either cut back on spending or dig deeper into their pockets. And too few of us are cutting back on spending.

As a result, the number of Americans who think they will have enough money to live comfortably in retirement fell from 59% in 2002 to 50% last year, according to the Gallup polling organization.

Not everyone thinks things are so dire. John Karl Scholz, a professor at the University of Wisconsin in Madison, produced a study last year that he believes conclusively shows that retirees are building enough of a nest egg to see them through retirement.

Scholz's study showed that 80% of people born between 1931 and 1941 - who constitute the bulk of current retirees - had saved enough to maintain their existing living standards during retirement. He assumes that baby boomers will perform just as well.

"The oldest baby boomers are entering retirement age right now," he says. "Nothing that I've seen says they're off-track."

But wait a minute. The 1930s generation was made up of children of the Great Depression, raised by parents who taught them to scrimp and save because that was the only way to survive.

Equally important, they grew up in an age when employers provided defined benefit pension plans and post-retirement medical plans. The creation of the 401(k) spelled the end of the Golden Age of Retirement, and the shift in medical care to a bewildering array of HMOs, PPOs and medical savings accounts helped put the nail in the coffin.

Suddenly the responsibility for retirement savings shifted from the employer to the employee. And many employees, quite frankly, lacked the savvy to manage retirement on their own.

More than a fifth of people who qualified to participate in a 401(k), declined to do so, probably feeling they needed the money more in the here-and-now than in some vague and distant future. More than half failed to diversify their investments, often by over-investing in their company's stock. Most importantly, many people cash out when they change jobs, according to a recent report from the Center for Retirement Research at Boston College.

As a result, the median balance of a 401(k) or Individual Retirement Account for the head of a household between the ages of 55 and 64 is about $60,000, the research center says. That translates into an inflation-indexed annuity of only $250 per month.

"This is not your grandfather's retirement, where health care coverage and a monthly pension check for life was a given," says Bob Hanna, partner at Retirement Wealth Strategies in Columbus, Ohio. "Most of us are at risk of outliving the money we've saved for retirement."

Right now, more than 43% of Americans are at risk of not having enough money to maintain their lifestyles during retirement. And that number rises to 48% for baby boomers, according to Alicia Munnell, director of the Center for Retirement Research.

Munnell says there are a few ways of remedying the problem.

If people were to retire at age 67 instead of 65, the share of "at risk" households would drop by 11 percentage points. Similarly, if people could save just 3% more of their earnings each year, the percent of "at risk" households would decline by another 11 percentage points.

Frankly, my own plan is to work until my 70s - partly because I love my job but also because I'm making up for a lifetime of misspent savings. The reason AARP shortened its name to a mere abbreviation a couple of years ago was to reflect that changing reality. No longer would people have to see the word "retired" spelled out in front of them.

Now if they could change their name to the Association of People Who Hope to Eventually Retire, Once They Get Their Act Together, I'd be very appreciative.
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