Working longer can mean bigger Social Security checks
Retirement experts frequently recommend working longer if you haven’t saved enough. But you may not realize just how powerful a little extra work can be.
Researchers who compared the relative returns of working longer versus saving more last year reached some startling findings. Among them:
• Working three to six months longer was the equivalent of saving an additional 1% for 30 years.
• Working just one extra month was similar to saving an additional 1% for 10 years before retirement.
• Delaying the start of retirement from age 62 to age 66 could raise someone’s annual, sustainable standard of living by 33%.
This is potentially great news for people in their 50s and 60s who are able and willing to stay on the job. But younger people shouldn’t use the findings as an excuse to ignore their 401(k)s, since many people retire earlier than they planned.
“I would see this as a positive message for people who maybe didn’t save as much as they could have and they’re wondering what to do,” says researcher Sita Slavov, a professor of public policy at George Mason University in Arlington, Virginia, and a faculty research fellow at the National Bureau of Economic Research. “I would not use this to advise younger people not to save.”
Potentially Higher Standard of Living
The study, which Slavov co-authored with her former Stanford University professor John Shoven and two of his other students, Gila Bronshtein and Jason Scott, first compared the effects of saving more, working longer or trimming investment expenses. They used theoretical households who save 9% of their salary over 30 years starting at age 36. Then they looked at actual households from the University of Michigan’s Health and Retirement Study, which tracks thousands of people 50 and over. The trends were the same: Working longer had the biggest impact on the household’s standard of living in retirement.
That makes sense. When you’re young, your savings have decades for compounded returns to grow. Likewise, keeping investment fees low means more of your money is available to compound. So an increase in savings or decrease in expenses can have