While the typical retirement message usually focuses on how much people should stash away from every paycheck, new research shows that working longer is the key to dramatically increasing retirement money, even if you go just a month longer than you had planned.
Just those 30 days could increase a retiree’s standard of living every year during retirement by as much as if he or she had saved an extra 1 percent of pay each year for 10 years before quitting, according to a study from Stanford University economics professor John Shoven.
Add on a little more time and the effect compounds. Retiring at 66 instead of 62 increases a person’s standard of living by a third, according to the study.
Shoven tested the impact of working longer on a wide range of incomes and investment returns; assuming investment gains would match inflation. Regardless of variations, all people benefited from postponing retirement.
This surprising finding should entice people to try to work a few more months, no matter how fed up they are with the rat race.
When a person works longer it helps in multiple ways. Most important, said Shoven, is to delay taking Social Security, which grows about 8 percent a year with each year of delay up to age 70.
Financial adviser Leon LaBrecque, who is based in Troy, Michigan, had to figure this out recently for one of his clients, a 64-year-old salesman who was eager to retire. Staying on the job resulted in: adding two years of $24 000 contributions to his retirement; letting his existing savings sit untouched so they could grow; delaying Social Security so the benefit would be 16 percent larger; and reducing needed savings in retirement to 28 years instead of 30.
“If you stick it out another two years you will have $200 000 more and have less chance of running out of savings in retirement,” LaBrecque said.
To endure working longer, financial planners suggest the following:
Refashion the job
Just because you keep working does not mean you have to keep at the same task. Financial planner Mark Rylance gave this advice to a 64-year-old business owner who was tired of dealing with bad customers: Skip them.
Rylance, who is based in California, suggested the client simply not take on stress he did not want, which allowed him to keep working at the rest of his job for a little while longer.
Work with your boss
If you are not the one in charge, you can still negotiate a better deal for yourself to stay on the job a bit longer.
Sometimes asking for a less-demanding position at the same workplace can help. Tampa, Florida, financial planner Ruth Delaney advised a woman in a highly stressful government job to seek a transfer, and she is now enjoying work and saving intensely.
Still, people must think carefully about their workplace before seeking relief. Telling an employer retirement is near could also provide license for a cut if layoffs are needed.
Find a hobby-job or encore career
Seek a fun, completely different job – perhaps part-time – with pay large enough to cover the bills for a couple of years.
Financial planner Anitha Rao of Woodstock, Georgia, had a client “test drive” alternative work. He took a vacation from his existing job to get a feel for the new part-time position and decided it was do-able.
Make a deal with yourself
Tell yourself you will last another six months because you can always quit. After that, add another six.