When we plan retirement some don’t want to hear how much it may help to work a few more months.
I’ve just reviewed a new study published by the National Bureau of Economic Research. Their research confirms working a few years longer has a bigger impact on improving retirement income security for older workers than boosting 401(k) contributions during the last decade of work. Here’s a few interesting details:
- The biggest impact of the working longer strategy applies to older workers because the benefits of traditional retirement strategies, such as increasing savings or switching to a lower-cost portfolio, diminish with age.
- A 56-year-old worker who decides to work just one month longer at the end of his career could get the same increase in retirement income as he could buy boosting his retirement saving rate by one percentage point over 10 years.
- There are several reasons working longer has such a positive effect on retirement income. Additional months or years of work allow you to contribute more to your retirement accounts and delaying withdrawals from those accounts allow more time for them to grow.
- The Social Security effect is highly progressive. The study noted that the lower one’s income, the larger the gain in Social Security benefit from additional earnings.
- A lower-wage worker needs to work only 2.1 months longer to equal the benefits of saving an extra one percentage point of income over 30 years. A higher-wage earner has to work 4.4 months longer to get the same benefit.
When we discuss your plans, all these strategies (and more) will come into play. Our goal is finding your ideal date to retire, the right strategy for income, and the best tax efficiency throughout retirement.
