Millions of American workers are facing a tough financial dilemma when it comes to planning for retirement. Modern medical technology is allowing people to live longer and healthier lives, but the savings necessary to sustain them through their declining years is being depleted in many ways. Many workers have therefore decided to extend their careers and work into their 70s, or even 80s, in the hopes of enjoying a more financially secure retirement. In many cases, this is a very smart move. Although this idea may not seem very appealing at first, the following comparison shows that working a few extra years can make a substantial difference in how you are able to live after your working days have ended.

Example 1
Stan worked for his company for 30 years and accumulated $250,000 of retirement savings. He retired at age 65 and lived to be 90 years old. His retirement portfolio grew at a rate of 5% per year. He withdrew $25,000 each year and ran out of savings after about 14 years. Stan was forced to live on his Social Security income for the remainder of his life.

Example 2
Lydia worked for 42 years and retired at age 75. She accumulated $115,000 of retirement assets and died at age 83. Her portfolio also earned 5% per year and she withdrew $15,000 every year. The remainder of her money went to her heirs.

These illustrations show two obvious benefits to working later. The first benefit is that it allows workers more time to contribute to their retirement savings accounts, and the second benefit, is that the money will not have to last as long. If Stan in the first example was saving $7,000 a year in his retirement plan, then he could have accumulated an additional $35,000 plus any investment growth if he had worked another five years. Lydia had far less saved than Stan, but her savings outlasted her because she worked as long as she did. Working longer can therefore usually be regarded as a relatively safe means of increasing your retirement security.

Health Coverage
Another major benefit to working later is the extended healthcare coverage that you will continue to receive through your employer. The cost of health insurance premiums for the elderly can be devastating in some cases, such as where the insured has serious health problems. Employers may also offer ancillary benefits such as long-term care or critical illness coverage that can save you money on premiums. However, working longer can also help seniors to save money on healthcare costs by preventing or postponing physical and mental illnesses, as keeping a job obviously requires older workers to continue to stay active and vigilant while they work. A health and retirement study published by NBER indicated a distinct correlation between retirement and increases in depression, decreased mobility and other physical and mental afflictions.

Social Security
Private savings are not the only source of income that will increase for those who keep working. If you defer your Social Security benefits until age 70 or later, then you can expect to have to save 25% more for your retirement than if you started receiving benefits at your normal retirement age. It would often take an additional $50,000 to $100,000 of personal savings to generate a stream of income equal to the guaranteed increase that you will receive from your Old Age, Survivors And Disability Insurance (OASDI) program benefits if you postpone them for as long as possible.

Life Longevity
Another possible benefit to working later may include extended longevity and health, as your job will continue to require you to function at a higher level than you most likely will after you stop working. However, keep in mind that our grandparents typically worked well into their 60s or 70s before they retired. Our median retirement age has been somewhere around age 62 for the past few years, so we are really just reverting to the mean in some respects.

The Bottom Line

Delaying the age at which we retire may not sound fun, but it definitely has its benefits. Not only does it give us more time to build our retirement nest eggs, it also allows us to keep our health up. For more information on how working later can benefit you during retirement, consult with a financial advisor and your HR manager.

Photo Courtesy of Philip Taylor PT

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Insurance

    Learn about the SPDR S&P Insurance exchange-traded fund, which follows the S&P Insurance Select Industry Index by investing in equities of U.S. insurers.
  2. Professionals

    How to Protect Elderly Clients from Predators

    Advisors dealing with older clients face a specific set of difficulties. Here's how to help protect them.
  3. Professionals

    Social Security 'Start, Stop, Start' Explained

    The start, stop, start Social Security strategy is complicated. Here's what retirees considering it need to consider.
  4. Retirement

    Strategies for a Worry-Free Retirement

    Worried about retirement? Here are several strategies to greatly reduce the chance your nest egg will end up depleted.
  5. Professionals

    Top Social Security Issues for Divorced Women

    What female divorcees need to know about the twists and turns of figuring out Social Security benefits.
  6. Markets

    The 5 Biggest Canadian Insurance Companies

    Learn more about the insurance industry as a whole, how it functions in Canada, and the five largest Canada-based insurance companies.
  7. Entrepreneurship

    How Does ClassPass Work and Make Money?

    Find out how ClassPass makes money, how the company aims to help both businesses and consumers, and why it has been so successful.
  8. Professionals

    Index or Target Dates in 401(k)s: Which is Better?

    A common question is whether or not plan participants should choose index or target date funds in a 401(k). The answer depends on different scenarios.
  9. Retirement

    Why are 401(k) contributions limited?

    Find out why contributions to 401(k) retirement plans are limited, including what the current contribution limits are and how limits encourage participation.
  10. Retirement

    What Are the Risks to Your Retirement Security?

    One of the biggest risks to your retirement security is something you may take for granted: your health, and more specifically, health-care costs.
  1. Net Collections

    A term used in medical accounting to describe the amount of money ...
  2. Corridor Deductible

    Expenses that are paid by the insured in excess of an insurance ...
  3. Insurance Consortium

    A group of businesses or organizations that join together to ...
  4. Mobile Health

    Mobile health is the practice of medicine using new mobile technologies.
  5. Blanket Medical Expense

    An insurance policy which provides coverage for all medical expenses ...
  6. Classified Insurance

    Insurance coverage provided to a policyholder that is considered ...
  1. Are spousal Social Security benefits taxable?

    Your spousal Social Security benefits may be taxable, depending on your total household income for the year. About one-third ... Read Full Answer >>
  2. What are the best ways to sell an annuity?

    The best ways to sell an annuity are to locate buyers from insurance agents or companies that specialize in connecting buyers ... Read Full Answer >>
  3. Why would someone change their Social Security number?

    In general, the Social Security Administration, or SSA, does not encourage citizens to change their Social Security numbers, ... Read Full Answer >>
  4. Are spousal Social Security benefits retroactive?

    Spousal Social Security benefits are retroactive. These benefits are quite complicated, and anyone in this type of situation ... Read Full Answer >>
  5. Are Social Security payments included in the US GDP calculation?

    Social Security payments are not included in the U.S. definition of the gross domestic product (GDP). Transfer Payments For ... Read Full Answer >>
  6. Where are the Social Security administration headquarters?

    The U.S. Social Security Administration, or SSA, is headquartered in Woodlawn, Maryland, a suburb just outside of Baltimore. ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!