Retirement Information
Retirement is the point where a person stops employment completely.
A person may also semi-retire and keep some sort of job, although usually out
of choice rather than necessity. This usually happens upon reaching a determined
age, when physical conditions don't allow the person to work any more (by illness
or accident), or even for personal choice (usually in the presence of an adequate pension or
personal savings). The retirement with a pension is considered a right of the
worker in many societies, and hard ideological, social, cultural and political
battles have been fought over whether this is a right or not. In many western
countries this right is mentioned in national constitutions.
Retirement is also sports jargon for the situation where a team decides never
again to issue the jersey number of a retiring player, as a token of honor.
Retirement age
In most countries, the idea of a fixed retirement age is of recent origin,
being introduced during the 19th and 20th centuries - before then, the absence
of pension arrangements meant that most workers continued to work until death,
or relied on personal savings or the support of family or friends. Nowadays
most developed nations have systems to provide pensions on retirement in old
age, which may be sponsored by employers or the state. In many poorer countries,
support for the old is still mainly provided through the family.
The retirement age varies from country to country but it is generally between
55 and 70. In some countries this age is different for male and females. Sometimes
certain jobs, the most dangerous or fatiguing ones in particular, have an earlier
retirement age.
In the United
States, while most view 65 as normal retirement age, many retire before
then, sometimes with contributory causes such as job-loss, disability or wealth.
However, the Old Age Survivors Insurance or OASI, better known as the Social
Security system has age 62 as the earliest retirement age and 70 as the
oldest. Normal retirement age for those turning 65 in the year 2006 was 65
years and 8 months because year 1941 was their year of birth. [1]
Retirement age for teachers in France is
thirty years after employment and age 50 for train engineers [2] on
the SNCF, the
national railway. Policemen in the United States are typically allowed to retire
at half pay after only 20 years of service or three-quarter pay after 30 years,
allowing people in their early forties or fifties to retire.
Many scientists, lawyers, TV anchormen, and professors still work well into
their 70s, however many actors, models, athletes, and musicians only work until
their 30s.
Military members of the US
Armed Forces may elect to retire after 20 years of active duty. Their retirement
pay (not a pension since they can be involuntarily called back to active duty
at any time) is calculated on total number of years on active duty, their final
pay grade and the retirement system in place when they entered service. Allowances
such as housing and subsistence are not used to calculate a member's retired
pay. Members awarded the Medal
of Honor qualify for a separate stipend, regardless of the years of service.
There is a federally mandated cap of 75% of their final base pay in all cases.
Military members in the reserve and US
National Guard have their retirement based on a point system.
Support and funds
Retired workers then support themselves either through superannuation, pensions,
or savings. In most cases the money is provided by the government, but sometimes
granted only by private subscriptions to mutual
funds. In this latter case, subscriptions might be compulsory or voluntary.
In some countries an additional "bonus" is granted una tantum (once
only) in proportion to the years of work and the average wages; this is usually
provided by the employer.
The financial weight of provision of pensions on a government's budget is often
heavy and is the reason for political debates about the retirement age. The
state might be interested in a later retirement age for economic reasons.
The cost of health care in retirement is large, because people tend to be ill
more frequently in later life. Increasing numbers of older people, combined
with an increase in the cost of healthcare, has led to the funding of post-retirement
health care becoming a political issue. There is then pressure to reform healthcare
systems to contain costs, or find new sources of funding.
Early retirement
Early retirement can be at any age, but is generally before the age (or tenure)
needed for eligibility for support and funds from government or employer-provided
sources. Thus, early-retirees rely on their own savings and investments to
be initially self-supporting, until they start receiving such external support.
Savings needed for early
retirement
While conventional
wisdom has it that one can retire and take 7% or more out of a portfolio
year after year, this would not have worked very often in the past.[3] [4] When
making periodic inflation-adjusted
withdrawals from retirement savings, volatility can
make meaningless many assumptions that are based on long term average investment
returns.
The chart at the right shows the year-to-year portfolio balances after taking
$35,000 (and adjusting for inflation) from a $750,000 portfolio every year
for 30 years, starting in 1973 (red line), 1974 (blue line), or 1975 (green
line).[5] While
the overall market conditions and inflation affected all three about the same
(since all three experienced the exact same conditions between 1975 and 2003),
the chance of making the funds last for 30 years depended heavily on what happened
to the stock
market in the first few years.
Those contemplating early retirement will want to know if they have enough
to survive possible bear
markets such as the one that sent the 1973 retiree back to work after 20
years.
The history of the US stock
market shows that one would need to live on about 4% of
the initial portfolio per year to insure that the portfolio
is not depleted before the end of the retirement. [6] This
allowed for increasing the withdrawals with inflation to
maintain a consistent spending ability throughout the retirement, and to continue
making withdrawals even in dramatic and prolonged bear
markets.[7] (The
4% figure does not assume any pension or change in spending levels throughout
the retirement.)
Calculations using actual
numbers
Although the 4% initial portfolio withdrawal rate described above can be used
as a rough gauge, it is often desirable to use a retirement planning tool that
accepts detailed input and can render a result that has more precision. Some
of these tools model only the retirement phase of the plan while others can
model both the savings or accumulation phase as well as the retirement phase
of the plan.
The effects of making inflation-adjusted withdrawals from a given starting
portfolio can be modeled with a downloadable
spreadsheet that uses historical stock market data to estimate likely portfolio
returns. Another approach is to employ an online
retirement calculator that also uses historical stock market modeling,
but adds provisions for incorporating pensions,
other retirement income, and changes in spending that may occur during the
course of the retirement.
Finally, a newer method for determining the adequacy of a retirement plan is Monte
Carlo Simulation. An Online
Monte Carlo retirement calculator allows you to enter savings, income,
and expense information and simulate your retirement by running through thousands
of simulations of your retirement.
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