The Benefits of Working Longer

June 21st, 2012

by Shelley Seagler

According to the Employee Benefit Research Institute’s (EBRI) 2012 annual Retirement Confidence Survey, only 14% of Americans are very confident that they will have enough money to live comfortably in retirement.  If you find yourself lacking confidence about whether or not you have saved enough for retirement, consider pushing back your intended retirement date.   You probably have a target retirement date in your head, but the benefits of continuing to work may be enough to help you get on track.

In a recent article in the Journal of Pension Benefits, David Blanchett, a research consultant for Morningstar Investment Management writes “Delaying retirement by one year can improve the probability of retiring successfully by 18 percent; delaying two years can improve the probability of retiring successfully by 37 percent; and delaying three years can improve the probability of retiring successfully by 55 percent. In summary, delaying retirement can yield a significant, positive impact on the probability of retirement success. “

Less Time to Cover

Your retirement funds have a big job to do – they have to last. But working longer shortens your retirement period.   According to the latest data compiled by the Social Security Administration, a man who reaches the age of 65 today can expect to live, on average, another 18 years.  And a woman reaching age 65 today can expect, on average, to live another 20 years.  Reducing the time your retirement portfolio has to cover, even by a year or two, increases the power and longevity of your retirement savings.  Because you will most likely have no control over when your retirement ends, you should make the best decision possible about when it will begin.

More Time to Save and Grow

It should be no surprise that the single biggest factor contributing to your retirement success is how much you have saved.  Retirement savings drives approximately 74% of retirement success. Once you start living off your portfolio, you’re no longer contributing to it.  So if you need to save more, working a few extra years is certainly your best chance of doing so, especially if you have the benefit of making contributions to a tax-advantaged, employer-sponsored retirement plan.   In addition to giving you more time and money to save, continuing to work delays the consumption of your portfolio and gives it additional time to increase in value.

While we’re on the topic of retirement savings, I am compelled to remind you how important it is to know how much you will need to save before you can retire.  According to EBRI, more than half (56 percent) of Americans report that they have not even tried to calculate how much money they will need to be able to live comfortably in retirement.  Having an accurate estimate of how much money you will need isn’t guesswork – it’s math.  Keeping up-to-date personal financial statements and using tools like Snider Advisors’ My Financial Plan can help you stay on top of this information.

Increased Social Security Benefits

Lastly, working longer allows you to delay when you start taking Social Security benefits.  Don’t make the mistake of underestimating the potential advantage of waiting a few years to begin taking Social Security.  Because of how Social Security is calculated, if you wait until age 70, your benefit could be almost double what it would be if you start taking it at 62.  Delaying when you start Social Security could result in more than an additional one hundred thousand dollars in your pocket over the course of your lifetime.  (See our Special Report, It’s All in the Timing: Evaluating the Best Time for You to Begin Taking Social Security, to learn more.)

Working longer may not be something you particularly want to do.  But if the alternative is being underfunded and unprepared for retirement, it may be your best choice.  Unless you’ve done the math – and unless you KNOW you can retire at your target date, you should at least evaluate the effect of working a few more years than you had intended.

1.  Blanchett, David M. and Jason E. Grantz. 2011. “Retirement Success: A Surprising Look into the Factors that Drive Positive Outcomes.” The ASPPA Journal, vol. 41, no. 3 (Summer):6-11.

This is not financial, legal or tax advice. Our goal is your financial success, but all investments involve risk including the possible loss of principal and results will vary. If you are interested in the Snider Investment Method, please read the Owner's Manual for a complete discussion of risks and benefits. More information can be found on our website or by calling 1-888-6SNIDER. Past performance is not indicative of future results.

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