Many workers look forward to retirement and a chance to enjoy the laid-back, leisurely lifestyle a full-time job just doesn't allow for. Unfortunately, the majority of workers today might have to wait a bit longer before bringing their careers to a close. Roughly 60% of Americans are very likely to work longer than they initially planned, as per a recent study by the Indexed Annuity Leadership Council (IALC), and the reasons very much boil down to money.
On one hand, working longer certainly has its share of benefits. But you should know that if that's not the road you want to take, there are other ways to set yourself up for a secure retirement.
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Why it pays to work longer
The financial benefits of working longer are multifold. For one thing, the longer you work, the more opportunity you'll have to pad your nest egg, whether you do so by maxing out your 401(k) or saving a few extra hundred dollars a month in an IRA. Just as importantly, the longer you work, the longer you'll avoid withdrawing from your nest egg, since, conceivably, your paycheck should be enough to allow you to leave your savings alone. And the longer your nest egg remains untouched, the greater its chances of lasting throughout retirement.
Working longer can also help from a Social Security perspective in that holding off on filing for benefits can cause them to increase. For each year you delay benefits past your full retirement age, you'll boost those monthly payments by 8%. Therefore, if working a few extra years allows you to wait on Social Security and raise your benefits, you'll be guaranteed a higher income stream for life.
Ways to avoid working longer
Despite the benefits of working longer, it's not the right move for everyone. After all, you're apt to have more energy to travel and partake in leisure activities in your 60s than in your 70s, and the longer you wait to retire, the more you run the risk of not getting to do all the things you've been imagining. Therefore, if you're eager to retire on time, or even early, you'll need to commit to that goal during your working years.
You can start by saving as much money as you can, as early as you can. Giving yourself the longest possible savings window is perhaps the best way to ensure that you're not compelled to stay in the workforce longer than expected. Furthermore, if you give yourself a 30- or 40-year savings window, you'll get away with saving a smaller amount each month, as the following table illustrates:
|
If You Start Saving $400 a Month at Age: |
Here's What You'll Have by Age 65 (Assumes a 7% Average Annual Return): |
|---|---|
|
25 |
$958,000 |
|
30 |
$663,000 |
|
35 |
$453,000 |
|
40 |
$303,000 |
|
45 |
$197,000 |
|
50 |
$120,000 |
|
55 |
$66,000 |
TABLE AND CALCULATIONS BY AUTHOR.
As you can see, saving just $400 a month won't cut it if you're first starting out in your 50s. But if you make an effort to start building your nest egg early on, you'll be better positioned to retire on schedule.
Another key move to make if you want to retire on time is to invest your savings aggressively, which means going heavy on stocks. The 7% return we used above is actually a bit below the stock market's average, and it's a reasonable expectation for a long-term stock-oriented portfolio. But if you play it too safe and generate, say, a 3% return, you'd wind up with just $362,000 by saving $400 a month over a 40-year period rather than $958,000. Granted, that's still a lot more than what many of today's older workers have, but it'll buy you a lot less financial security than $958,000.
Finally, consider getting a side hustle if you're older and no longer have the opportunity to invest as aggressively or grow your savings over a lengthy period of time. In the above-mentioned study, 14% of U.S. adults are working a second gig to boost their retirement savings, so if you're willing to put in a little extra effort now, it might you buy a timely escape from the workforce in a few years.
Though working longer can be a good way to boost your savings and sustain your nest egg, if that's not what you want to do, there are ways around it. It may take some effort, but if you set your sights on retiring on time, chances are, you'll get to do just that.
