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The Surprising Power of Retiring Just a Little Later

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Working just a little longer past your planned retirement age can improve your standard of living for your entire retirement to a surprising extent.

Example: A new study from the ­National Bureau of Economic Research (NBER) has found that staying on the job just one additional year beyond age 66 would typically result in 8% more income annually. That 8% per year translates into enough dollars to make a difference—for example, it boosts an expected annual retirement income of $50,000 (from Social Security and savings) by $4,000…or an expected income of $125,000 by $10,000, every year for life. And working three extra years rather than one means nearly 25% more annual income.

Main reasons the effect of working another year or so is great: You take Social Security benefits later, so they’ll be higher…and you contribute more to your 401(k) or other retirement account before you start tapping it. Also, if you want to buy an annuity for guaranteed steady income when you retire, you can get higher monthly payments for the same lump sum upfront because your remaining life expectancy is shorter.

Another surprisingly powerful benefit of delaying retirement: It can have as much of an impact on your retirement income as if you had saved more each year for a long time…and/or as if your investments had done much better while you were working. Example: Someone who works just five months beyond age 66 would wind up with the same amount of annual income in retirement as if he had raised his annual 401(k) contributions by an additional percentage point of his salary 30 years earlier.

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Source: John Shoven, PhD, the Charles R. Schwab ­Professor of Economics at Stanford University, Stanford, California. He is coauthor of the National Bureau of Economic Research study “The Power of Working Longer,” which you can find at Siepr.Stanford.edu. Date: September 15, 2018 Publication: Bottom Line Personal
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