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What does it mean when they say a specific retirement will add additional years of work? Compared to doing what?

Apr 24, 2015 by Troy in  |  Flag
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I think what they're saying is ... In the past, retirees could depend on a pension when they retired. This would provide them with a certain percentage of their earnings for retirement. Then when added to social security and personal savings, they had a nice retirement. Today, Pension plans are rare. And social security retirement age has been pushed back and is partially taxable. And retirees are living a lot longer than in the old days, so you need more money at retirement these days than has ever been needed before. And younger generations will be living even longer, so you need enough money to last the rest of your life. If you retire at age 65, you might need 30 or more years of income. People think they can save money for a few years and then retire, but you likely need to be saving half of your salary for 30 years if you expect to draw half of your salary when you retire. Who does that? If you delay retirement 5 years, not only do you have 5 more years to save and grow your nest egg, but you will also need to depend on that nest egg 5 years less. Hope this helps!

1 Comment   |  Flag   |  Apr 24, 2015 from Houston, TX

Tracy, I appreciate your response but what I am specifically asking is when you look up a 401k, they have red flags at the bottom and with my wife's works' 403b it states that you will work an "additional 12 years" I want to know what they are comparing that too. I am actually an advisor myself and don't want to mislead anyone when explaining that. Can you help me there? Thanks

Flag |  Apr 24, 2015

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Here is the answer to your question from the Brightscope FAQs page:

The best way to understand the delay in retirement age calculation is to understand the BrightScope RatingTM calculation. First, BrightScope defines the characteristics of the average participant (AP) in a 401k plan. The AP is defined as a 44-year-old, gender-neutral individual, earning an income of $44,000 a year, with a starting account balance of $40,000. This average is based on data gathered from the Employee Benefit Research Institute (EBRI). These four factors - age, gender, income and starting account balance - are held constant across all plans. The other factors that affect retirement security - company contributions, fees, vesting schedules, eligibility periods etc. - are unique to each plan and form the basis of the comparative value of the rating. The next step in the BrightScope RatingTM calculation is determining the amount of money the AP needs to retire at any given age. BrightScope calculates this actuarial retirement value for every age of the AP's life. The resulting sequence of values is called the "retirement goal line." The third step in the process is to calculate how quickly each individual 401k plan gets the AP to retirement. In order to accomplish this, BrightScope runs thousands of simulations per plan of the account value growth of the AP. For each simulation BrightScope notes the age at which the account value exceeds the "retirement goal line" value, which we call the "retirement age." Finally, BrightScope takes the median retirement age from the thousands of simulations and converts this age into the BrightScope RatingTM. Lower retirement ages receive higher scores and higher retirement ages receive lower scores on the 1-100 scale. Because BrightScope has a median retirement age for every plan we can simply subtract the delay in retirement age from one company versus the top company in its peer group. The delay in retirement calculations apply solely to a single defined contribution plan and do not take into account other retirement plans and programs offered by the employer.

Comment   |  Flag   |  Apr 27, 2015 from Charlotte, NC

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Maybe it is the assumption used to back up estimated retirement income projections. You should call the asset custodian that generated the statement. You will get a correct answer that way.

Comment   |  Flag   |  Apr 25, 2015 from Houston, TX

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The reference to "an additional 12 years" probably means that the assumptions that the 403b is using to calculate the future value of the fund is based on your wife working 12 more years and continuing to contribute to the plan.

Comment   |  Flag   |  Apr 26, 2015 from Snyderville, UT

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