The Scary Reason So Many People Are Working Beyond 65

Increasingly, American seniors are putting off the golden years of retirement. Nearly 20% of Americans over 65 are punching a clock, rather than hitting the links -- the highest percentage since the 1960s.The reason for this trend is clear and worrisome: Too many Americans haven't saved enough money to retire comfortably.

Here's the data from the Bureau of Labor Statistics:

The finding backs up survey results showing that more American workers are planning to continue working past the age we typically think of as "retirement age."

According to the 2015 Aegon Retirement Readiness Survey, only 14% of working Americans over age 55 plan to retire before reaching 65, and 53% of people over age 55 plan to work at least part-time during retirement.

Coming up short

American companies have steadily been swapping out pensions for employee retirement savings accounts such as 401(k) plans, and unfortunately, many Americans are failing to contribute to these plans to the extent necessary to finance retirement.

According to TransAmerica, the average American's retirement savings total about $63,000, even though the average worker thinks they'll need to save $1 million by retirement. This tremendous gap in savings bodes poorly for future retirees.

Many baby boomers plan to make up for their shortfall by relying heavily on Social Security. Currently, half of Social Security retirement beneficiaries count on Social Security for more than half of their income, and TransAmerica's reports that a quarter of workers expect Social Security to be their primary source of income, including 35% of baby boomers.

Social Security is not designed to cover the lion's share of retirement expenses. The program is only meant to replace about 40% of the average person's pre-retirement income. This year, the average monthly Social Security check is $1,345, which works out to a bit more than $16,000 per year. That's unlikely to fund the type of retirement lifestyle that most Americans envision.

A big problem

Given the reality of inadequate savings, it's no surprise that more workers are staying at their jobs. However, many seniors who plan to work later in life may face some harsh realities.

Less than half of workers surveyed by TransAmerica consider their employer be "aging friendly," and almost a quarter of workers say that their employers aren't aging friendly at all. Aside from the potential challenges of finding work later in life, many workers may overestimate their desire to keep working. In a Fidelity survey conducted last year, 64% of retirees said stress was a strong or somewhat strong factor in their decision to retire.

That could help explain why the Employee Benefit Research Institute has consistently found in its surveys that a significant number of people retire sooner than planned. Specifically, 46% of retirees have stopped working sooner than they had planned, and 55% said they did so because of a health problem or disability. Only a third of respondents to EBRI's study said they retired early because they could afford to.

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Every little bit counts

The average American worker with an employer-sponsored retirement plan contributes roughly 8% of their income to it, and that might not be enough. Even increasing contributions by three or four percent could make a big difference over time.

For example, contributing $5,200 per year (about 10% of the median U.S. household income) to an account that earns a hypothetical 6% per year results in a portfolio valued at $185,402 after 20 years. However, if that contribution is boosted to 12% of income, or $6,240 per year, then that nest egg would swell to $243,000.

If you want to avoid becoming part of this trend of delayed retirement, then you'll need take your financial destiny into your hands and save consistently and aggressively.

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