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Worried You Do Not Have Enough To Retire? Consider Working a Little Longer
Maureen Callahan

If you are concerned about funding your retirement, consider working a little longer. A recent study confirms what financial advisors have been saying for years: Extending your work life — even for a short time and even at a reduced salary — can have a major impact on your desired lifestyle once you do retire.

Related Read: Three Tips for Making Retirement Less Taxing

A case study

“The Power of Working Longer,” from the National Bureau of Economic Research (NBER) found that working just a few months longer can have the same impact on a person’s retirement standard of living as saving an additional 1% of work earnings for 30 years. How can this be true?

A simplified example shows how: Rachel is contemplating retirement at age 65, with a $2 million portfolio. Let us assume that the maximum amount she can safely withdraw from her portfolio at age 65 is 4%, or $80,000. This figure is based on the “4% rule,” but the actual safe withdrawal rate varies depending on market conditions and each individual’s circumstances (See Sidebar: Is the 4% Rule All It Is Cracked Up To Be?).

Suppose, instead, that Rachel decides to delay her retirement to age 70. She works part-time, earning enough to maintain her lifestyle without tapping her retirement savings — but not contributing to them either. Assuming a 7% rate of return, her portfolio grows to approximately $2.8 million when she retires in five years. Let us also assume that at age 70 she can safely withdraw 4.5% of her portfolio or $126,000. In this example, working an additional five years increased Rachel’s retirement income by more than 50%.

Other benefits

Boosting your retirement savings is just one of several benefits of working longer. You might also be able to:

Reduce the Length of Your Retirement
Delaying retirement not only allows you to increase your savings, but also reduces the amount of time you will need to rely on those savings. This minimizes the risk that you will run out of funds.

Maximize Social Security Benefits
For most people getting close to retirement, full retirement age (FRA) for Social Security purposes ranges from 66 to 67, depending on the year you were born. Once you reach FRA, you are entitled to your standard benefit. That benefit is reduced if you file for Social Security before your FRA and it is increased if you delay benefits beyond your FRA. If working longer allows you to wait until later, you will increase your benefit by 8% per year (with a maximum 32% increase over the standard benefit). So, delaying Social Security benefits can create a substantial benefit if you or your spouse live a long life.

Related Read: Considerations Before You Begin Social Security Benefits

Reduce Health Care Costs
If you are eligible for employer-provided health insurance, working longer can reduce your health care expenses. Even if you are covered by Medicare, Medicare Part B and prescription drug premiums can be significant, especially if you are subject to high-income surcharges. The longer you can postpone these premiums, the lower your health care expenses will be during retirement.

Delay Required Minimum Distributions
If you participate in an employer’s 401(k) or similar plan, the plan may permit you to delay required minimum distributions (RMDs) until you stop working.

Related Read: RMDs Are Back: Here Is How To Soften the Tax Blow

Increase Pension Benefits
If your employer provides you with a traditional pension plan, it is likely that the longer you work, the higher your monthly benefit will be. Since these benefits are typically paid for life, any increase will affect your standard of living during retirement.

Health Advantages

Not all of the benefits of working longer are financial. According to Harvard Medical School, the mental stimulation and social engagement provided by working longer is associated with a lower risk of dementia and death and improvements in overall health. And remote and flexible work arrangements make it easier than ever for those approaching retirement to continue working while improving their quality of life.

Not everyone experiences these benefits, though. It depends on the person and the type of work. For example, if a job is highly stressful or dull, continuing to work can harm your mental and physical health. If a job is physically demanding, the risk of injury may offset some of the other benefits of working longer.

Crunch the numbers

If you are concerned about outliving your retirement savings, consider working a few more years — or even a few more months. Your ORBA  advisors can help you crunch the numbers to get an idea of how working longer potentially might improve your retirement outlook.

Sidebar: Is the 4% rule all it’s cracked up to be?

The “4% rule” is used to estimate the maximum amount someone can withdraw from their retirement portfolio while maintaining sufficient savings for life. It is originally based on a study of stock and bond returns from 1926 to 1976.

This rule can help you gauge your potential standard of living in retirement, but you should not rely on it. There is no guarantee that future stock returns will follow historical patterns. And, as with all investments, there is always a chance that yours will lose value. Plus, the calculation depends on your particular circumstances — including your life expectancy, your investment portfolio’s risk profile and the future rate of inflation.

Relying on the rule, you risk outliving your retirement savings if you overestimate how much you can withdraw. If you underestimate withdrawals, you could sacrifice your enjoyment of retirement. A better approach is to work with your advisor to determine a withdrawal rate that is right for you and to revisit and adjust that rate annually.

For more information, contact Maureen Callahan at [email protected] or 312.670.7444. Visit to learn more about our Wealth Management Services.

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