Liz Weston: The life-changing magic of working a bit longer
Retirement experts frequently recommend working longer if you haven't saved enough. But you may not realize just how powerful a little extra work can be.
Researchers who compared the relative returns of working longer versus saving more last year reached some startling findings. Among them :
— Working three to six months longer was the equivalent of saving an additional 1% for 30 years.
— Working just one extra month was similar to saving an additional 1% for 10 years before retirement.
— Delaying the start of retirement from age 62 to age 66 could raise someone's annual, sustainable standard of living by 33%.
This is potentially great news for people in their 50s and 60s who are able and willing to stay on the job. But younger people shouldn't use the findings as an excuse to ignore their 401(k)s, since many people retire earlier than they planned.
"I would see this as a positive message for people who maybe didn't save as much as they could have and they're wondering what to do," says researcher
POTENTIALLY HIGHER STANDARD OF LIVING
The study, which Slavov co-authored with her former Stanford University professor
That makes sense. When you're young, your savings have decades for compounded returns to grow. Likewise, keeping investment fees low means more of your money is available to compound. So an increase in savings or decrease in expenses can have an outsized impact.
When you're older, your savings have less time left to grow: The runway ahead of you is shorter. So working longer starts to have the biggest effect.
Most of the benefit comes from delaying the start of
WHAT CLAIMING AT 62 CAN COST YOU
Starting
The advantages of delaying
Thanks to current low interest rates, there's no other investment that gives such a high, guaranteed return. And while the larger checks are designed to compensate for the fact that people who claim later will receive fewer payments over their lifetimes, longer life expectancies mean that most people will see more money overall by waiting. Delaying is particularly advantageous for the higher earner in a married couple and for single people, Slavov's previous research with Shoven found.
Their latest research shows that, overall, lower earners benefit even more from delay than higher earners. Again, that makes sense, because
Slavov acknowledges that job loss, bad health or the need to care for a loved one often can push people into retirement earlier than they planned. (A 2018 TransAmerica study found 56% of the retirees surveyed retired earlier than expected.)
"These results really apply to people who have the option of working longer," Slavov says. "Obviously, that's not going to be an option for everyone."
This column was provided to The Associated Press by the personal finance website
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