Few people want to work in what they expect will be their retirement years. Without enough money to fully fund retirement, however, some people find they have to work later in life than they expected to.
One way around this? Plan for retirement in your 20s or 30s, when you have decades to save and can let years of savings accumulate. Even people in their mid-50s, however, can save more retirement income by working a little longer—only six weeks more, according to a report by the National Bureau of Economic Research.
Working a little longer and delaying retirement, the study found, has the same impact on the retirement standard of living as saving 1 percent more in earnings for 30 years. The relative power of saving more is even lower if the decision to increase savings is made later in the work life.
For example, someone who is 36 and plans to retire in 30 years can either increase their retirement savings by 1 percent every year until age 66, or work three to six months longer. Working a few months longer adds the same amount to a retirement income as 30 years of extra savings.
The study assumes people are already saving 6 percent of their paycheck and that their employer is contributing 3 percent.
For someone aged 56 and who realizes they’ll need more retirement income in 10 years when they stop working, they can get the same result by either saving 1 percent more every year for 10 years, or working just six extra weeks.
One reason for this? Putting off Social Security collection allows the payments to increase. Waiting until age 70 increases them the most.
Some people can draw Social Security benefits at age 62. Waiting until “full retirement age” at 66 or 67, depending on when you were born, increases them substantially. Waiting until 70 pushes them up to full benefits. The Social Security Administration says that delaying retirement from age 62 to 70 raises monthly benefits 76 percent.
Working longer allows you to not only delay Social Security, but also save more of your income.
For wealthy people, Social Security shouldn’t have much of an impact on their retirement plans. But for middle-income and especially low-income people, working a few weeks or months longer than they planned can make affording retirement a lot easier.