The 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?

Retirement at 60A recent Gallup poll indicates 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.

Catastrophic Financial Event [RetirementSavvy]

First – and this one is pretty straight forward – the longer you are working, the fewer years of retirement you will need to finance.

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 401(k).

My SSA AccountAdditionally, 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. Third, by working longer you can earn more in Social Security benefits.

The Social Security benefits 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.

And finally, remaining eligible for health insurance benefits through an employer, which can provide coverage until you reach age 65 and become eligible for Medicare. 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.

And you SavvyReader? Have you established a target age/date for your retirement? Have you given thought to the advantages of working past that date should certain conditions arise?

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.

16 Comments

  1. Hi. A UK reader here who’s also planning to retire at 60, if not before 🙂 But you are quite right – we all need to know what the implications are of not quite making the deadline and the advantages of having a Plan B. Legislation, taxation and the rules around pensions change all the time and we need to be prepared.

    • Absolutely. Since there are so many things that are beyond your control, you need to focus like a laser on the things you can and be prepared to improvise, adapt and overcome the curveballs that may be thrown your way. Thanks for taking the time to stop by and join the conversation.

  2. My Mr. can retire early at 57, but at this point I don’t think he’ll make it that long. I like the comment from your Google+ reader that it’s not the age that matters.

    • For me, age is a factor with respect to the fact that I have to work until age 60 to collect the pension from my present employer and with respect to the fact that I cannot withdraw from my TSP (401k equivalent) and Roth IRA accounts until 59 1/2. While I would like to walk away sooner, the way my retirement portfolio is constructed – which is the primary factor in my withdrawal plan – I am pretty much locked into the earliest age I can leave the workforce. However, I am always hopeful that I will win the MegaLottery (difficult because I don’t play) or that Warren Buffett or BIll Gates will drop by this blog, take pity on me, and drop a $1M or $2M on me. One can always dream. 🙂

  3. Okay I need your input on this. I read a book that said while we all plan for 6-9% returns over our lifetime of savings, the only gain percentage that matters is the one on the day we retire. True? Makes logical sense to me, and could be why people who planned to retire in 2008 are working longer, but I’m a novice at all this.

    • “… the only gain percentage that matters is the one on the day we retire.” I’m not quite sure what the author was trying to communicate there, but my guess is that they are saying that whatever your average rate of return was over the last x years, it doesn’t really matter when you are going into retirement. The things that matter at that point are your sources of income (passive and portfolio) and your withdrawl plan (the rate and tax considerations).

      This is not a shameless plug, but a comprehensive savings/investment plan is at the heart of my book RENDEZVOUS WITH RETIREMENT. A detailed plan, with quantifiable objectives is required for a sound retirement plan. Too often I hear people say that they are just saving as much as possible. I refer to it as ‘Saving Blindly.’ While it is better than not saving at all, it has its own dangers. A failure to have a DETAILED plan is why I believe too many people end up working longer than planned.

      You can download the RWR Retirement Planner for free on the blog. It is not absolutely essential that someone buy the book. However, the book walks the reader through using the planner, uses an example family and most importantly, helps to establish context for the various entries, such as rate of return.

      • I’m not quite sure either. It doesn’t help that I’m not articulating it well. Will have to go back and reread so I express it better.

        And the planner is awesome!!! The book as well!!!

        • Thanks for the great feedback. Yeah, I’m not quite sure what the author was trying to communicate so perhaps my response is way off. If you get some clarity I would love to discuss in more detail. I’m always open to learning something new or perhaps getting a different perspective.

  4. A Google+ Reader states …

    “I retired in 2010 at age 49. I didn’t really plan on it but my job was no longer fun or rewarding so I quit to travel for a year in South America. I learned so much about my self and what really made me happy. I discovered that I really like a simple life with very few possessions. After the first year, I returned to the US and sold everything I owned which is not an easy task. I had things I could not give away. After I disposed of my things, I went to SE Asia for nine months. I had planned to continue traveling north to China and Russia but I was tired of moving every few weeks. I really liked Colombia so I moved there which is where I am now.

    The reason for the long narrative is that I think people should continue what they like to do until they are ready for something else. The age of person should not be a factor. Retiring at 50 or 80 should not matter. What makes you happy is most important.

    I liked my job for many years. I looked forward to going to work every day but I don’t miss it in the least.”

  5. A Google+ reader notes …

    “James, I have seen the happiest people not retire, rather start a new direction in their 60’s. The whole idea of modern retirement started in 1883 in Germany under Otto Von Bismark- prior to that there is no idea of slowing down in leisure and playing golf all day :-)”

  6. I’d like to retire at 60 too, which is in 5 years for me. Our target is to be debt free in 4 years, but I will work at least another year to accumulate more assets. The more I think about it, I think I may need to work until at least 62. Definitely want my husband to retire at 65 in four years. Lots to consider, including job satisfaction, health. Good luck to you in reaching your goal! How many more years do you have?

    • Right now our plan calls for us both to retire at 60. I’m 47 and the wife is one year older. The house will be paid off 1-2 years before she retires, leaving us basically debt free when we get to that point. The one small exception to that is our cars. Right now, both of our cars are paid off. However, they were both purchased about the same time, 6 years ago. The plan is to buy her a new car next year and keep mine for another 4-5 years. Basically I want to set it up to where we will have one brand new – or almost new car – going into retirement. Therefore, we may have one car payment as our ‘big’ expense going into retirement.

  7. Some good points to consider should you have to work longer than anticipated or desired.

    • While working longer may not be desired, there are ways to make lemonade out of lemons.

  8. My mother and father both retired this year. My mother’s planned and my father as a result of the city privatizing his role. It has been a few weeks & I spoke with my mother who is loving it but my father is restless. He work(s) a part-time job in the evenings at the local airport but has been working since he was 14. I’m not sure if he knows how to come down.

    I believe that same drive is the reason I haven’t given much thought to the age I would retire. I imagine myself working in some capacity as long as I Am mentally and physically able to.

    The end game is important and the points you make about working longer are valid, especially for the cost of healthcare.

    • It is interesting to me how everyone approaches retirement, or non-retirement, in different ways. While I enjoy my job, I have no desire to work past 60. I eagerly look forward to retirement. On the other hand, like you, some don’t give a lot of thought to retirement and generally think in terms of working for as long as possible.

      Even for those that do not “plan” to retire, I believe they still need to have a solid retirement plan in place. Your father’s case is a perfect example. Too often the decision to retire is not the individual’s alone. When an economic downturn, health issues, company reorganization, etc. force someone out of the work force earlier than planned – or when it is a planned retirement – it is essential to be financially secure and a plan for how to spend your days.

      Even if you are not working, it is important to have someplace to go, something to do on a daily basis. As I have noted previously, I firmly believe it is important to do something to improve your mental, physical, fiscal, and spiritual well-being on a daily basis…including in retirement.

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