The Benefits of Working Longer
Kiplinger's Personal Finance|June 2021
Delaying retirement for a couple of years—or even a few months— is the most effective way to improve your retirement security.
SANDRA BLOCK

FINANCIAL PLANNERS AND ANALYSTS HAVE LONG ADVISED WORKERS WHO HAVEN’T saved enough for retirement to work longer. But even if you’ve done everything right— saved the maximum in your retirement plans, lived within your means and stayed out of debt—working a few extra years, even at a reduced salary, could make an enormous difference in the quality of your life in your later years. And given the potential payoff, it’s worth starting to think about how long you plan to continue working—and what you’d like to do—even if you’re a decade or more away from traditional retirement age.

Larry Shagawat, 63, is thinking about retiring from his full-time job, but he’s not ready to stop working. Fortunately, he has a few tricks up his sleeve. Shagawat, who lives in Clifton, N.J., began his career as an actor and a magician. But marriage (to his former magician’s assistant), two children and a mortgage demanded income that was more consistent than the checks he earned as an extra on Law & Order, so he landed a job selling architectural and design products. The position provided his family with a comfortable living.

Now, though, Shagawat is considering stepping back from his high-pressure job so he can pursue roles as a character actor (he’s still a member of the Screen Actors Guild) and perform magic tricks at corporate events. He also has a side gig selling golf products, including a golf cart cigar holder and a vanishing golf ball magic trick, through his website, www.golfworldnow.com. “I’ll be busier in retirement than I am in my current career,” he says.

Shagawat’s second career offers an opportunity for him to return to his first love, but he’s also motivated by a powerful financial incentive. His brother, Jim Shagawat, a certified financial planner with AdvicePeriod in Paramus, N.J., estimates that if Larry earns just $25,000 a year over the next decade, he’ll increase his retirement savings by $750,000, assuming a 5% annual withdrawal rate and an average 7% annual return on his investments.

DO THE MATH

For every additional year (or even month) you work, you’ll shrink the amount of time in retirement you’ll need to finance with your savings. Meanwhile, you’ll be able to continue to contribute to your nest egg (see the box on the next page) while giving that money more time to grow. In addition, working longer will allow you to postpone filing for Social Security benefits, which will increase the amount of your payouts.

For every year past your full retirement age (between 66 and 67 for most baby boomers) that you postpone retiring, Social Security will add 8% in delayed retirement credits, until you reach age 70. Even if you think you won’t live long enough to benefit from the higher payouts, delaying your benefits could provide larger survivor benefits for your spouse. If you file for Social Security at age 70, your spouse’s survivor benefits will be 60% greater than if you file at age 62, according to the Center for Retirement Research at Boston College.

Liz Windisch, a CFP with Aspen Wealth Management in Denver, says working longer is particularly critical for women, who tend to earn less than men over their lifetimes but live longer. The average woman retires at age 63, compared with 65 for the average man, according to the Center for Retirement Research. That may be because many women are younger than their husbands and are encouraged to retire when their husbands stop working. But a woman who retires early could find herself in financial jeopardy if she outlives her husband, because the household’s Social Security benefits will be reduced—and she could lose her husband’s pension income, too, says Andy Baxley, a CFP with The Planning Center in Chicago.

CALCULATE THE COST OF HEALTH CARE

Many retirees believe, sometimes erroneously, that they’ll spend less when they stop working. But even if you succeed in cutting costs, health care expenses can throw you a costly curve. Working longer is one way to prevent those costs from decimating your nest egg.

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