Four Benefits of Working Longer

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

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.

Acutal vs Expected Age of Retirement_Gallup

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.

Savings_Prisma Mononoke Filter

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.

Blogger-in-Chief here at RetirementSavvy and author of Sin City Greed, Cream City Hustle and RENDEZVOUS WITH RETIREMENT: A Guide to Getting Fiscally Fit.

17 Comments

  1. Hey James, nice post (Ty linked me here!). You’re right, working longer doesn’t have to be the complete negative that many make it out to be. When we do get to FI, I imagine we’ll continue doing ‘active income earning’ for a long time after that because we’ll enjoy whatever it is we’re doing and we may need the money for various reasons.

    Tristan

  2. My plans are going better than expected for being able to retire early, but I plan to keep working. I may try to reduce my work days to 3 days or so a week though or do something else for work. That’s the big benefit I seek, having freedom to move around any area of work that interests me. All the reasons you gave except pension are motivators for me to continue some form of work though. Plus I can see myself being too much of a couch potato if I fully retired. Some work I think will always be healthy for me.

    • “That’s the big benefit I seek, having freedom to move around any area of work that interests me.” Exactly. As I often say, being wealthy isn’t about earning a particular income or acquiring – and hoarding – a certain amount of money, it’s about putting yourself in a position to have choices, whether that be to work at something you love, travel, volunteer, etc.

      Thanks for stopping by and sharing your thoughts, my friend.

  3. I did not know that social security takes the average of your highest 35 years of earnings to determine your monthly numbers. Thanks for the tip!

    If you had a good career for 30 years or so and then slipped into a lower pay/lower stress job for the last few then it could be an incentive to retire earlier eh?

    Thanks for sharing!

  4. I’ve been thinking about this a lot over the past few days, so the timing of your post is great, James.

    Last week I was visiting my dad who told me he was planning to work “one more year” before retirement. I’ve heard this a few times before and basically begged my dad to retire now and enjoy his time. His response has stuck with me.

    He said “you know Ty, there are worse things in the world than working.”

    He expounded a bit more and I’m going to put his thoughts into an upcoming blog post, but the thought was enlightening. I get so laser focused on my own FIRE goal that I easily forget FIRE isn’t a one size fits all strategy.

    • The wife and I were discussing retirement ages again this morning and if possible – primarily if our employer is offering an early retirement incentive during the period we are 58 or so – we were determining what we would have to do between now and that time to be ready financially. It seems as though lately I see and hear about a lot of people who continue to remain in the workforce, for one reason or another, and never are able to break away … or finally break away only to suffer an illness or injury that limits their time/ability to enjoy retirement. However, no doubt everyone’s situation is different, as is the path to retirement.

      Looking forward to your post. Please drop me a message to let me know when it’s up.

  5. As a millennial I hope the baby boomers retire and make room for new faces to be hired into the workforce.. But then again, I want the option to work until into 65 so I can’t say I blame them. Would love the increased savings that I get from working a lot longer!

    • “As a millennial I hope the baby boomers retire and make room for new faces to be hired into the workforce.” Interesting. Last year in a post, I asked the question, “Are Boomers the Selfish Generation?”

      I noted there are probably two reasons Boomers are staying longer in the workforce. First, there are a fair number of Boomers, with good jobs, who are in their prime earning years, making more money than ever. Their attitude is, “why leave?” The second reason, and I suspect the primary reason for most, is that they simply did not properly prepare for retirement; they don’t have any other choice but to remain in the workforce.

      Hopefully you’ll be in a position to retire at your discretion when the time comes and not have your retirement dictated by outside forces.

  6. Working longer does close that gap to Medicare and Social Security and I feel the same way as you James, if I had to – I certainly could work longer. I have seen a theme this week in a few posts about flexibility and the importance of considering a variety of options. I think we’d like to know what the future will hold, but so many things can change. It’s our planning and flexible mindset that will take us far!

    • Thanks for sharing your thoughts, my friend. While you can get down into the weeds when it comes to the specific planning for each individual/family, ultimately my experience has been that two things are required in a world of some knowns and many unknowns: take the time to develop a detailed retirement plan (the earlier the better) and assume the worst as you execute your plan.

  7. Even though you may set an age or year to retire we still have to stay busy. That’s the key.
    Good article James

    • ” … we still have to stay busy.” Indeed, as I recently covered in Find Your Passion. Having a plan to stay engaged and busy is absolutely necessary.

      Thanks for stopping by and sharing your thoughts, my friend.

  8. The nice thing about goals to retire early is that you have more control and can react to big economic events. If it is better to wait out a market downturn for a year or two, you can. If you are forced out of work because of health or other circumstances, you don’t always have that luxury of waiting until the best time to retire.

    • “If you are forced out of work because of health or other circumstances, you don’t always have that luxury of waiting until the best time to retire.” Great point.

      I touch on that idea in the post I Don’t Plan to Retire. Even if you don’t plan to retire, or don’t have a particular age in mind, you need a retirement plan to guard against factors (e.g. health, market downturn, job loss, etc.) that may be beyond your control.

  9. Hey James – good points on the benefits of working longer. It’s a tricky balance – working longer also means giving up “freedom” for 1 year, which could be ~10% of your remaining “active” years (assuming by Age 70 you can no longer climb that mountain you want to climb). Since I’m retiring early (Age 55), I’m working 1 year beyond my “FI” age as a buffer against the unexpected. I realize I’m fortunate, but I’ve also planned and worked hard to put myself in this position. Good points raised, and worthy of consideration before finalizing you’re exit date.

    • “I’m working 1 year beyond my “FI” age as a buffer against the unexpected.” Great approach. Because we have to wait to receive the defined benefits from our current employers, the wife and I are basically locked into working until 60 though we will have reached ‘FI’ before that based on our savings/investment accounts (IRAs, brokerage, etc.). Therefore, our approach is a little different. Our buffer is to use the time when we will have reached ‘FI’ (~ mid 50s) to age 60 to double the amount ($65,000) we need on an annual basis in retirement income. By the time we hit 60, I project we will be able to draw about $130,000 from 8-9 sources. Even if something negative were to happen to one of those sources, we’ll still be okay.

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