It's important to have enough money saved before you retire. After all, the last thing you want is to worry about money during your golden years -- or to end up broke and relying on Social Security alone.

To make sure you have a big nest egg, saving as much as possible throughout your working life is important. But a new paper suggests you can also make a big difference in your retirement standard of living just by working a little longer. In fact, staying at your job an extra three to six months can have the same impact as saving an additional percentage point of earnings over 30 years, according to the National Bureau of Economic Research

Senior couple looking at financial paperwork with calculator.

Image source: Getty Images.

How does working longer impact your retirement income? 

NBER compared working longer versus saving more across all different income levels and for single and married couples. The findings were consistent: You could work a few extra months to see a boost in retirement income comparable to saving more of your hard-earned money over multiple decades. 

Not only that, but the later in your life that you boost your savings rate, the less beneficial it is to save more compared with working longer. Working just a single additional month would provide an equivalent increase in retirement income as starting to save another percentage point of earnings 10 full years before retirement. Because of this, NBER indicates older workers see a diminished benefit from following the traditional strategy of diverting more income to savings as they near retirement.

Working longer, on the other hand, has an outsized impact on your future lifestyle -- especially if you put in an extra year. A 66-year-old who stays on the job for one year longer could see a 7.75% increase in inflation-adjusted retirement income while a 1% increase in the share of earnings saved from age 36 to 66 would boost inflation-adjusted retirement income by just over 2%.

Why does working longer impact retirement income?

There are three reasons NBER identifies to explain why working longer increases your retirement income and standard of living. These three reasons include:

  • The ability to save more for retirement: The longer you work, the longer you can contribute to a retirement savings account and the more money you'll end up with. 
  • The ability to buy cheaper annuities: Researchers assumed retirement-age workers purchase inflation-indexed joint survivor life annuities, the cost of which declines as you age. 
  • An increase in Social Security benefits: Working longer, and delaying your claim for benefits, allows you to earn delayed retirement credits. This increases your Social Security income. 

It was the increase in Social Security benefits that NBER indicates makes the biggest impact in boosting retirement income. For that 66-year-old described above who received a 7.75% income boost by delaying retirement a year, 83% of the additional income came from increased Social Security benefits. 

How can you stay in your job long enough?

While working longer has big benefits for senior workers, many older people are forced to leave the workforce involuntarily because they can't find work or because they can't physically work anymore.

To help you maximize the chances you'll be able to work an extra few months -- or years -- if you choose to:

  • Take good care of your health: Visiting the doctor for preventative care, eating right, and staying in good shape can decrease the chances you'll need to leave work because you become physically unable to continue at your job. 
  • Keep your skills sharp: Continue to take classes in your field, advance your knowledge, and make professional connections. This will make you more valuable to your current employer and less likely to be let go -- and will help you to find new work if you need to. 
  • Consider part-time work: If you can't manage to maintain a full-time job, a part-time position could allow you to delay claiming Social Security benefits and continue working to invest in your retirement savings. 
  • Know your rights: Age discrimination is unlawful. If you believe your employer has let you go because you're getting older -- or that you've been refused work because of your age-- you can take legal action. 

Is working longer worth it?

NBER makes clear that working a little longer can have a noticeable impact in your standard of living. And it may seem easier to put in an extra three to six months than to boost your savings rate when you're young. But you'll need to weigh the pros and cons.

You give up time in retirement by staying in the workforce for longer, and you may decide you'd rather save more throughout your life so you can say sayonara to the working world when you're ready -- rather than stay in your job for an extra few months because you need the income boost.