The Benefits of Working Longer

The Benefits of Working Longer

Americans, in general, are poor savers – and saving for retirement is no exception. With employer-provided pensions all but disappearing, it has fallen on individuals to save for their own retirement. According to the Economic Policy Institute, the mean retirement savings of all working families is $95,776. However, many families have no retirement savings at all while, on the other side of the spectrum, some wealthy families have massive retirement savings balances that skew the average in the other direction. It is, perhaps, better to look at the median, or the 50th percentile of retirement savings balances, which is only $5,000 for all working families.

What is the best way to solve this crisis? The reality is that we all are going to stop working at some point and will need an income to live on – and most people cannot live on Social Security Retirement Benefits alone (even if benefits don’t get reduced). A National Bureau of Economic Research white paper, “The Power of Working Longer,”was published recently examining this problem. For those approaching retirement age, what changes to their retirement plan are the most impactful? The factors considered were: working longer, saving more, and earning a higher rate of return on investments. Overwhelmingly, the conclusion reached was that working longer had a greater impact on the income received during retirement. In fact, according to their research, working just 3-6 months longer has the same impact as saving an additional 1% over 30 years. One of the main reasons: our dependence on Social Security. For every year one delays receiving Social Security income benefits (up to age 70), the higher the benefit will be in subsequent years. Social Security makes up the largest percentage of most American’s retirement income. By delaying retirement, all sources of retirement income increase – Social Security increases, as well as personal savings. The other key factor is that each additional year spent working is not only another year where you are earning an income and saving – but also one less year where you are drawing from your portfolio – that is, one more year of growth before you start drawing on your retirement savings.

When it comes to retirement savings, time is always the main factor. The more time you have to save, the better off your financial situation should be in retirement. With life expectancies increasing and people needing to plan for 20, 30, or even 40-plus years in retirement, working a few more years doesn’t seem like a big sacrifice to live more comfortably in your golden years.

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