This Is a Risky Way to Plan Your Retirement

The most common age at which Americans retire is 63, and the age at which most retirees start collecting Social Security is 62 -- the earliest age at which they can do so. But personal finance guru Suze Orman has recently urged people to not retire until age 70: "70 is the new retirement age -- not a month or year before."

With or without Ms. Orman's urging, many working Americans are already planning to work a long time: Fully 30% of 60-year-olds plan to work until at least age 70, according to a recent CareerBuilder survey. And among all workers, a significant 23% plan to work until at least age 70, per a Willis Towers Watson report. That can be a good plan, but it should not be your only plan -- or you risk having a very difficult retirement.

Image source: Getty Images.

Here's a look at why it's smart to work until age 70 and why you shouldn't plan to.

Why working a few more years is a great idea

There are actually a lot of reasons why it's smart to not plan to retire early. Let us review a few:

• The longer you work, the more you can sock away for retirement -- and the more powerfully it can grow.
• The longer you work, the more you may be able to collect in 401(k) matching funds from your employer. That means more free money for your retirement war chest.
• The longer you work, the shorter your retirement will be. Therefore your nest egg will have to support you for fewer years, and you may be able to withdraw more each year.
• The longer you keep working, the longer you may be able to stay on your employer's health insurance plan, which can keep more money in your pocket.
• The longer you delay retiring, the bigger your ultimate Social Security checks will be (though making them bigger will only be worth it if you live a longer-than-average life).
• Since Social Security benefits are calculated based on your 35 highest-earning years (adjusted for inflation), you will either be getting closer to having 35 years' worth of income or you'll be adding some higher-earning years that will kick out lower-earning years, boosting your benefits.

The following table should help make it clear just how powerful it can be to add a few more years of saving and investing:

Data source: Calculations by author.

As an example, imagine that you're socking away $15,000 annually and originally planned to do so for 15 years. That would grow to almost $440,000. But if you could keep it up for another three years, perhaps delaying retiring from age 65 to 68, you'd end up with about $607,000. That's a substantial difference of $166,830 -- just for three more years and $45,000 more invested.

Image source: Getty Images.

Why you shouldn't count on working a few more years

The reasons to retire later are quite compelling. But just because that's your plan, it doesn't mean you'll achieve your goal. Why? Well, because many of us actually won't get to decide exactly when we retire.

The 2017 Retirement Confidence Survey found that 48% of retirees left the workforce earlier than planned, with 41% citing health problems or a disability as the reason, 26% citing changes at work such as a downsizing or workplace closure, and 14% having to care for a spouse or other family member.

Those are some scary statistics, especially if you're behind in your saving and investing. If that's the case, you can improve your odds of having a good retirement by saving more aggressively and investing more effectively -- such as by keeping long-term dollars in the stock market, where they have a good chance of growing at a decent clip. It's also smart, no matter the size of your nest egg, to get in and stay in as good health as possible -- and aim for your loved ones to get and stay as healthy as possible, too. This will reduce the chances of being unable to work due to health problems or having to quit to care for a family member. At your job, you might work on being as indispensible as possible, to reduce your chance of being downsized -- or if you have the opportunity to switch to a job with greater job security, give it serious consideration.

Finally, even if it turns out that you can work until age 70 or so, there's a compelling reason not to, as long as you have sufficient income set up to support you in retirement: Early retirement can be great! Few of us have any idea how long we'll live, so retiring sooner rather than later should give you more years of retirement to enjoy. Also, the younger you are when you retire, the more active you can be in retirement. If you want to do a lot of biking or plant a big garden or climb Mount Kilimanjaro, it will be easier to do that when you're 65 than when you're 75. Early retirees often can enjoy their money more, being younger, healthier, and more able to travel, enjoy recreation, and so on.

Image source: Getty Images.

Other powerful strategies

You might, of course, simply end up kind of stuck -- downsized before you wanted to be and without sufficient funds to fully support you in retirement. If so, all is not lost. You can improve your situation by working part-time during some of your early retirement years. Many retirees find themselves restless and a bit lonely in retirement, and a low-stress job on the side can be quite helpful on that count, too.

Working just 12 hours per week at $10 per hour, for example, will generate about $500 per month -- a useful sum. It doesn't even have to mean that you'll be a cashier at a local retailer or delivering newspapers. There are many other possibilities. You might do some freelance writing or editing or graphic design work. You might tutor kids in subjects you know well, or perhaps give adults or kids music or language lessons. You might do some consulting -- perhaps even for your former employer. You could babysit, walk dogs, or take on some handy-person jobs. These days the internet offers even more options. Make jewelry, soaps, or sweaters, and sell them online.

You could also save money by downsizing and moving to a less costly house or part of the country. Or you could rent out space in your home on a long-term or short-term basis.

Take some time to figure out how much money you'll need in retirement -- and how you will amass that sum. As you factor in Social Security income, know that the average monthly retirement benefit was recently $1,404, which amounts to nearly $17,000 per year. If your earnings have been above average, though, you'll collect more than that -- up to the maximum monthly Social Security benefit for those retiring at their full retirement age, which was recently $2,687. (That's about $32,000 for the whole year.) That's probably not as much income as you want in retirement, so you'll need to have a good retirement plan and to execute it well.