The phrase “live long and prosper” was popularized by the Spock character on the original Star Trek television series, played by Leonard Nimoy, who died recently after a long and prosperous life.
But after retiring, living long and prospering do not necessarily go hand in hand.
In the years since the Enterprise boldly went where no man had gone before, the traditional concept of defined benefit retirement plans have eroded just about everywhere—less among government employers, but there too. For the private sector, those plans—where the burden was on the employer and the benefit was to the individual—have been largely replaced, if at all, by defined contribution 401(k) type plans—where the burden is on the individual and the benefit, in terms of avoiding that burden, is on the employer.
Federal employees are among the fortunate few to have both types of plans, and the defined benefit is all the more valuable because it has features such as inflation protection that are increasingly scarce even among private sector employer that offer defined benefits.
However, it’s worth noting that the FERS system now covers more than nine-tenths of current employees—that is, of future federal retirees—and that the majority of new retirees are going out under FERS versus CSRS. And the FERS system’s defined benefit feature is worth less than half of that under CSRS. The presence of Social Security in FERS makes up for some of the difference, but the rest, if it is to be made up at all, is the responsibility of the individual to make the most of the defined contribution Thrift Savings Plan.
That comes with a heavy responsibility to invest at high rates, to invest well, and to choose well in making withdrawals. It’s especially important because life expectancy keeps increasing, meaning that retirement savings have to be stretched out over ever-longer periods. For example, just since 1980, the life expectancy of a man at age 65 has increased by four years.
There are several ways to accomplish this. One is to simply live on less: accept a lower standard of living. Another, though, is to work longer. That increases the amount saved while shortening the period during which it will be spent.
Federal employees increasingly are making that latter decision, according to recently released OPM data. A report shows that the average federal retirement age in 2004 was 58.7. Every year since—and that is remarkable in its consistency—the average age has increased a bit, in 2013 standing at 61.3.
That’s an average of 2.6 years longer over a period of a decade and comes despite an increase in that time in mandatory retirements at younger ages, which are required in certain occupations. Most notably, that reflects the surge of air traffic controllers hired in the early 1980s to replace the fired strikers who now are reaching mandatory retirement.
The trend is the same nationwide. For more than the last decade, labor force participation of those age 55 and older has increased, according to a recent report from the Center for Retirement Research. It cites several factors including:
The increase in the age at which full Social Security benefits can be claimed;
Improved health that simply allows people to keep working;
A more educated workforce; more highly educated persons tend to work longer, in part because they are in less physically demanding jobs;
The desire to coordinate retirement with an employed spouse at a time when women’s participation in the workforce has increased; and
The decline of employer-sponsored health insurance coverage in retirement, providing an incentive for many to work until Medicare eligibility at 65.
The report sums it all up in a few simple words: “working longer is the key to a secure retirement.”