7 More Years for a Million Dollars

OK, so the recent stock market crash has messed up your retirement plans. That stinks. But all is not lost -- there's a solution: Work a little longer. It might not be so appealing, but it can be incredibly effective. Even if you're far from retirement, lengthening your work life a little can put you in a much better financial position.

Let me explain. Let's say that you're nearing retirement and that early this year, you'd accumulated about a million dollars in your nest egg. According to my favorite retirement resource, our Rule Your Retirement newsletter, to make your nest egg last, you should conservatively plan to withdraw about 4% of it per year in retirement for living expenses. So you might have been expecting to withdraw $40,000 in the first year to live on. Sounds reasonable, right?

Well, along comes 2008. The stock market plunges, and your nest egg drops to $600,000, falling 40%. All of a sudden, that $40,000 income has become $24,000. Yikes.

The solution: a little more time
You know how you sometimes had to ask a teacher for an extension of a due date? How you may have filed for an extension with Uncle Sam, too, for your tax return? Well, you can file for a retirement extension, too.

If you work another three years and the stock market averages 10% growth per year (its historic average), you would gain a total of about 33%, enough to turn your $600,000 into $800,000, and that $24,000 into $32,000. Tack on one more year, and your total gain may be 46%, enough to deliver nearly $880,000 and $35,000. Of course, the stock market may well grow much faster or slower during the period you invest, so these numbers are just examples. The point here is that by delaying retirement, you can probably plump up your nest egg considerably.

Better still, you can sweeten the pot further by adding even more to your nest egg in the years before you retire. Socking away $5,000 per year? Try to sock away $7,000 or even $10,000 instead. This tactic is much more powerful if you're not too close to retirement right now. It means your extra investments will have more time to grow for you. Because after all, it all comes down to the power of dollars compounding over time. The more dollars you can invest, the better, and the longer they can grow, the more you're likely to make.

More is more
Here are some additional reasons why working just a couple extra years can be beneficial:

  • You'll have more time to get your finances under control. (If you're saddled with debt, for example, you might pay it off.)
  • You can delay collecting Social Security, too, which can result in a significantly higher annual payout for you.
  • If you were planning on an early retirement, you'd probably have had to pay for your own health insurance until you qualified for Medicare. By delaying, you can minimize or eliminate this not-insignificant cost.

And most importantly, each year that you work and put off retiring is a whole year in which you don't live off your nest egg. That will permit it to keep growing for you.

To appreciate just what a few extra years can do, check out these numbers, all based on starting with a nest egg of $100,000 at age 40 and earning the market's historic average of 10% per year (remember that you'll likely earn more or less than 10% -- it's just an average):

By age ...

nest egg had grown for ...

and became ...


15 years



18 years



20 years



22 years



25 years

$1.1 million


28 years

$1.4 million


30 years

$1.7 million


32 years

$2.1 million

Look at that: In this example, just by working three more years, until age 58, you might gain $138,000, enough to provide an extra $5,500 per year in retirement. You can add even more than that by working just two more years, from ages 60 to 62. And look at what happens if you can work an extra seven years (in our example, from ages 65 to 72): You nearly double your money, tacking on an extra million dollars. That's a big deal.

Remember that if your money grows at 10%, you can double your nest egg over any seven-year span, not just from ages 65 to 72. And remember that this example assumes you don't even add to your nest egg over the years. You surely will, and that will boost your worth much more.

Beat 10%
If earning a 10% return seems too small, you can aim to do better, by carefully selecting some stocks to add to your portfolio. Nothing is guaranteed, but consider how some well-known companies have grown, on an average annual basis, over the past 20 years.


20-year average annual return



Best Buy (NYSE: BBY  )


Oracle (Nasdaq: ORCL  )


Procter & Gamble (NYSE: PG  )


Walgreen (NYSE: WAG  )


Coca-Cola (NYSE: KO  )


PepsiCo (NYSE: PEP  )


Data: Yahoo! Finance.

Numbers such as these show you how much your money can grow over time -- especially when squeezing out a couple percentage points more annually. If you're savvy or lucky enough to have made a $10,000 investment that compounds at an average annual rate of 15% for 25 years, it will grow to more than $300,000. Even at just 12%, Coca-Cola and PepsiCo grew quickly enough to turn a $25,000 nest egg into about $425,000 over 25 years -- versus $271,000 if it were earning 10% annually! That's the power of compounding at work, and the longer you let it keep doing its stuff, the more you'll make. (If that Coke or PepsiCo investment grew for 27 years, it would become $533,000. For 30 years? Almost $750,000.)

So take heart -- even in this dismal market setting, you can set yourself up to prosper, whether retirement is around the corner, or far down the road. And heck -- right now looks like one of the best times to buy stocks. If you'd like to build a pain-free retirement, try our Rule Your Retirement newsletter service for free, with full access to all past issues. It regularly offers recommendations of promising stocks and mutual funds, too.

Longtime Fool contributor Selena Maranjian owns shares of Coca-Cola and PepsiCo. Coca-Cola and Best Buy are Motley Fool Inside Value recommendations. Best Buy is a Stock Advisor selection, and the Fool owns shares of Best Buy. Procter & Gamble is an Income Investor recommendation, and the Fool owns shares of it. Try our investing newsletters free for 30 days. The Motley Fool is Fools writing for Fools

Read/Post Comments (6) | Recommend This Article (23)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 11, 2009, at 8:00 PM, cathiea wrote:

    You can't "work a little longer" if you are unemployed. If I can't find a job soon, I may have to tap into my retirement savings and further decrease my nest egg's rate of growth.

  • Report this Comment On June 12, 2009, at 5:01 AM, kirkgary wrote:

    The logic is sound, but the 10% growth assumption is aggressive, considering the effect of the baby boomers on investments. Growth will be impacted as they transition from building to withdrawing.

  • Report this Comment On June 12, 2009, at 10:18 AM, lola70 wrote:

    Cathiea is right. I was trying to build up savings, but became unemployed at 65. So, how can I work longer. Not much call for a 65 year old secretary.

  • Report this Comment On June 12, 2009, at 10:53 AM, Sace1683 wrote:

    I agree that the logic is sound, on the other hand i dont see 10% growth as agressive. To kirkgary's comment on the baby boomers effect. Take your time and do your due diligence. Yes they have an effect. Take advantage of it :)

    Now i did have the advantage of not being in the market prior to september of '08(being withdrawn for a financial emergency othe than a couple retirement plans) Since the market has crashed however i am up about 200% or so(% sounds nicer than the actual amount). Now i have been semi lucky on some timing, but i dont try to time...just try to find stocks that are beaten down for little to no reason, i also in my RL portfolio stick to company's that are making money.

    GL ya'll and good hunting :)

  • Report this Comment On June 12, 2009, at 11:04 AM, portefeuille wrote:

    The logic is sound?

    This article is ridiculous. What about the "nest egg" losing another 40%. Have you heard of the crash of 1929?

  • Report this Comment On June 12, 2009, at 4:45 PM, Demoncrat wrote:

    The baby boomer effect is a scare tactic of the investment elites who aim to maintain depressed return projections to keep costs low and maximize institutional returns.

    As the baby boomers withdraw from their plans, they will incidentally create value. Assume the example of the $100 static stock for argument's sake. This $100 includes the speculatory premium given to stocks. As quantities are sold, the price is depressed because it's a buyers position and there's a premium price to be paid for liquidating (why it's easier to sell near the top than at the top).

    These depressions create value and help to lock in your future gains. It mirrors the gains we'll see for the next 10 years out of buying dividend paying stocks like PG at $45 and HON at $25 just a few months ago, capturing a high yield return and solid gains.

    Just remember to buy at value instead of paying a premium as they retire. Either that, or buy into long-term care, medical instruments, etc.

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