Most need a new income source

Many baby boomers think they’ll be able to fill the gaps in their retirement savings by working longer in their current jobs. Most assume they alone will determine exactly when they’ll retire.

More likely, though, most of today’s middle-age workers who want to continue working after 60 or even 65 will need to find a new source of income.

While nearly half of baby boomers expect to work past 65, only 13 percent of current retirees surveyed this year by consulting firm McKinsey & Co. actually worked until that age.

Forty percent of current retirees were forced to stop working earlier than they had planned, the survey found. The average age when current retirees left the workforce: 59.

Boomers have a financial incentive to work past 65. Older boomers can’t receive full Social Security benefits until 66 or later; those born in 1960 or later aren’t eligible until 67. Individuals can start taking partial Social Security benefits at 62, but if they do, they’ll receive a reduced amount for the rest of their lives.

Current retirees cited two primary reasons for quitting sooner than planned:

Illness. About 47 percent of current retirees who retired earlier than planned were forced to stop working because of health problems, according to McKinsey & Co. Less-affluent retirees were far more likely to cite health problems as the reason for forced retirement than higher-income workers were, the study found.

“At lower-income levels, many of these people have jobs that require physical labor,” says McKinsey’s David Hunt. As they age, some are no longer able to handle that work, he says.

Unemployment. Forty-four percent of current retirees who retired earlier than planned blamed job loss or downsizing. Unemployment was the most frequently cited reason for early retirement among retirees with more than $250,000 in investments, the McKinsey study found.

“Even at reasonably high levels of pay, if you’re laid off when you’re 53 or 54, it’s much harder to get retrained and back in the work force,” Hunt says.

To test whether age bias is real or imagined, researcher Joanna Lahey sent out about 4,000 resumes to firms in Boston and St. Petersburg, Fla., and measured response rates from employers.

The results: A younger worker is more than 40 percent more likely to be called for an interview than a worker 50 or older, according to the 2005 study done through the Center for Retirement Research at Boston College.

Another sobering statistic: The average period of unemployment in 2005 was 24.1 weeks for job seekers 55 and older, compared with just 17.8 weeks for those under 55, a report by AARP found.

Frustrated by the dearth of good jobs, older workers are increasingly becoming independent contractors or starting their own businesses.

Among workers 50 and older, 16 percent are self-employed vs. 10 percent for the overall work force, according to a 2004 AARP study.

Self-employment allows older workers to put their years of experience to use. It usually also offers more flexibility than a traditional job.

Still, older workers who start their own businesses face a serious challenge: finding health insurance. Medicare doesn’t kick in until 65, and private insurance policies are expensive, and possibly even unobtainable.

Some analysts see cause for hope. They think job opportunities for older workers will increase as boomers retire in large numbers.

Employers are expected to face a skills shortage in coming years, and baby boomers provide a varied and experienced labor pool. Over the 2004-2014 decade, total employment is projected to rise by 18.9 million jobs, or 13 percent.