The Greatest Retirement Payoff: Working Longer
Want to improve your quality of life in retirement? Work longer.
A new study has shown that delaying retirement by just one month can equal an additional 1% in savings for 10 years and working for 4 extra years, from 62 to 66, can improve retirees’ standard of living by 33%.
Researchers Sita Slovov of George Mason University in Arlington, Virginia, and John Shoven from Stanford University, compared the impact of saving more vs. working longer vs. cutting investment expenses. Their study included a review of households of 50 year-olds and up from the University of Michigan Health and Retirement Study. Their findings: working longer had the greatest impact on the quality of retirement.
When you’re young, your savings have plenty of time to grow. Not so much for those in their 50’s and 60’s because they have fewer years to benefit from compounded growth. While financial advisors still recommend saving and continuing to invest, staying on the job is the best way to improve your financial health in retirement.
The main benefit of working longer: delaying the start of getting Social Security checks. That’s because the moment you start claiming the benefit, you lock in a set amount for life. Hence, while you can start collecting monthly checks at 62, the amount will be much higher if you delay until 70, when the amount maxes out. The payoff can be as large as 76% in Social Security income for a person whose full retirement age is 66 but waits until 70 to start getting checks.
The study also found that those who earn less benefit even more. Higher income people reach a cap on their Social Security contributions during their working years. Hence, the proportion of their income replaced by the monthly checks is lower than for people with less income.
There are legitimate reasons to retire early. Past studies show that more than half of retirees retired earlier than they initially had planned. Illness, job loss or family obligations are often the culprits. But even for those who must retire early, financial experts will often suggest tapping into other retirement income sources to delay starting Social Security benefits for as long as possible.
As study coauthor and professor John Shoven notes:
“You really get quite a handsome payoff from working longer…There’s no saving you could possibly do that would affect your retirement resources as dramatically.”
At Silverman Financial, our goal is to help you prepare for the most financially stable and solid retirement possible. We strategize and develop financial roadmaps to increase, grow and preserve your retirement income.