Author: Matt Bell / Source: Wise Bread
As you glance into the future, do you see a life of endless work stretching out in front of you? If so, you’re not alone. An increasing number of people are wondering how they’ll ever be able to retire.
But maybe things aren’t as bad as they seem. In fact, a recent study found that delaying retirement by just a few months could have a major impact on your ability to retire and your standard of living in retirement.
A National Bureau of Economic Research (NBER) study concluded that “working three to six months longer boosts retirement income by as much as increasing retirement contributions by one percentage point over 30 years of employment.”
More specifically, the study found that instead of retiring at age 66, working until age 67 can boost retirement income by 7.75 percent. By contrast, increasing the amount of earnings saved in a retirement account by one percentage point starting at age 36 and keeping it at that level for the next 30 years would raise retirement income by just over 2 percent.
The NBER findings held true for singles as well the primary earner of married couple households across a wide range of incomes.
That isn’t to say that increasing your savings rate is a bad idea. It’s just that of the two main options available to workers who are behind on their retirement planning — saving more or working longer — working even a little longer will likely pay higher dividends than saving more.
The value of waiting
The researchers noted four benefits from delaying retirement. First, each additional month of work provides an opportunity to save more in a retirement account. Second, it gives that account balance more time to grow. Third, if you plan to buy an annuity, each month that you hold off will increase the benefit amount for the same cost or lower the cost of the same benefit amount.
Fourth, and by far most importantly, each month you delay retirement will boost your Social Security benefits. The earliest you can claim benefits is age 62; the latest is age 70. Between those two points, each month that you wait will increase your monthly benefit.
You can review your estimated Social Security benefits by creating an account on the SSA website. You’ll see how…
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