Regular readers of this blog know that I have every intention of retiring at 60. I am focused like a laser on that target age. However, what if the economic environment and/or my financial fortunes change as I close in on 60? While staying in the workforce longer is not ideal, I do recognize there may be some benefits to doing so.
The Financial Crisis
A Gallup poll from April 2014 notes that in the aftermath of the 2008 the financial crisis, many Americans are pushing back the age at which they retire. The poll indicates that the average age at which American retirees report leaving the workforce is now 62, the highest age since Gallup started tracking the issue in 1991. Also, the average age at which non-retired Americans expect to retire has also increased over time, from 60 in 1995 to 66 this year.
Like me, you may be working hard and planning diligently to retire by a certain age. Unfortunately, events beyond our control may conspire against us and require considering working longer. Should that be the case, there are at least four distinct financial advantages to working a few more years if necessary.
Advantages of Working Longer
Reduced Requirements – The first advantage is pretty straight forward. The longer you are working, the fewer years of retirement you will need to finance.
Increased Savings – Second, by working longer, you have more years in which to accumulate savings for retirement. During your prime earnings years, debt should be eliminated and you should absolutely be in a position to maximize contributions to retirement accounts such as IRAs & 401(k)s, and continue to reap the benefit of ‘free’ money if your employer matches contributions to your defined contribution plan.
Additionally, if your employer offers a traditional defined benefit plan, you stand to gain a greater monthly pension as the formula for calculating the benefit often includes years of service and/or ending salary. The longer you hang around, the more you are likely to get.
Social Security Benefits – Increase ’em. The calculation uses your highest 35 years of earnings to calculate your average monthly earnings. Simply put, for every year you work later in life – when you are presumably making significantly more money – a year in which you were making a lot less drops out of the calculation.
Moreover, if you are still working, you can delay drawing your Social Security benefits. The longer you wait to draw your Social Security benefits – up to age 70 – the greater the pension. I strongly encourage you to create a ‘my’ Social Security Account and download your statement which will show the projected benefit amounts for ages 62, the full retirement age (in the 66-67 range depending on when you were born), and age 70. As an example, I recently reviewed my statement which varies by $1,400/monthly between the ages of 62 and 70.
Healthcare – If you stay in the workforce longer, you remain eligible for any health insurance benefits provided by your employer. Perhaps you stay until you become eligible for Medicare at age 65. It is well documented, and it only makes sense, that as you grow older the more likely you are to pay health-related expenses. And as we all know, they ain’t cheap. Therefore, it makes sense to leverage health care benefits as long as possible.