How Working Longer Impacts Your Retirement
A Contingency Plan
Working in retirement might sound like a contradiction in terms. But working past the age you'd intended to retire is one of the best ways to build long-term retirement security. Even a few additional years can pay a surprisingly large bonus down the road in the form of higher annual retirement income.
If your retirement planning efforts didn't bear as much fruit as you had hoped, working longer may be your best plan B.
Financing Longer Retirements Americans are living longer. At age 65, a woman can expect to live an average of 19 more years; men will live an average of 16 more years. Those are just averages, meaning many of us will live much longer -- and average longevity is projected to keep rising in the decades ahead. This makes it more difficult than ever to finance retirement from the traditional age of 65 -- or younger.
People Retiring Early Most people say they don't plan to retire until age 65 at the earliest, but sometimes words and actions don't match. More than half of Americans file for Social Security at age 62 -- the youngest age of eligibility. The normal retirement age, or NRA, as defined by the Social Security Administration is 66 for anyone born between 1943 and 1954, and it's gradually moving to 67 as a result of reforms approved in 1983. The Social Security Administration reports that 73 percent of workers who filed for benefits in 2009 were filing early -- that is, sometime before their full retirement age.
Reeling From Market Losses
The decimation of retirement portfolios in the 2008 market crash is just one of many reasons to consider working longer. "Working longer has three beneficial effects," says Alicia Munnell, director of the Center for Retirement Research at Boston College and author of "Working Longer: The Solution to the Retirement Income Challenge."
"It substantially increases Social Security benefits, a really important source of retirement income because they are indexed for inflation and continue for as long as the person lives.
"It also allows time for 401(k) plans to recover from the recent financial collapse and in normal times simply to accumulate more assets.
"And it increases the ratio of working years to retirement years. Right now the numbers are 40/20. Take four off of retirement and add to work, the ratio becomes 44/16, close to three-to-one."
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