The key to a secure retirement isn’t saving more. It’s working longer.
Or at least so says research recently published by the Center for Retirement Research at Boston College (CRR). “Working longer is one of the most effective ways to improve prospects for a secure retirement,” wrote Geoffrey Sanzenbacher and Steven Sass, authors of Read Is Working Longer a Good Prescription for All? . “It increases monthly Social Security benefits, allows more time for saving in 401(k)s, and shortens the period of retirement that assets need to cover.”
Working longer is also widely seen as a reasonable response, because the authors wrote, people are living longer and healthier lives. The question, however, is whether this prescription is realistic for individuals across the socioeconomic spectrum, from less educated workers to educated workers.
And the answer is a qualified yes.
Now, it’s well established that higher socioeconomic status workers as measured by educational attainment can typically work longer. But the study also found that working longer is “reasonable” for less educated workers, wrote Sanzenbacher and Sass.
“The basic advice is that working longer is by far the most effective way to gain a more financially secure retirement,” said Sass in an interview. “Retiring at age 70, as opposed to age 62, increases your Social Security monthly benefit at least 75%.”
Work to at least full retirement age. According to Sass, less educated workers typically plan on retiring too soon to gain a financially secure retirement. “They might not need to work till they’re 70,” he said. “But they should plan on working into their latter 60s, or at least to their full retirement age or FRA.”
FRA is the age at which a person may first become entitled to full or unreduced Social Security retirement benefits.
Higher survivors benefit. Working to FRA or beyond comes with one big benefit. “If you’re married and the higher earner, your widow(er) will get that higher monthly Social Security benefit as your survivor,” Sass said. “And that should push the present value of the Social Security benefits for most such workers in favor of delay.”
Money in your nest egg? Working until FRA or beyond does require, however, that you have enough money earmarked for retirement. “A key strategy is building a ‘nest egg’ before retirement to draw from instead of starting Social Security ‘right away’ to gain the benefits of larger checks,” said Daniel Keady, the chief financial planning strategist for TIAA. “Retiring early and starting Social Security early may greatly reduce lifestyle in retirement. In some cases, delaying Social Security claiming may help if you have another source of income.”
How you can work longer. To be fair, working longer is easier said than done. “’Working longer’ is often the ‘best’ answer, but it may not always be easy to execute for the employee,” said Keady.
Still, experts say it can be done. Keady suggests investing in yourself by updating your skills before you may need to retire from your current position. “What is the cost and time frame?” he asks. “Any free job training options available from your state? What have others in your occupation done to gain skills needed to change careers?”
Sass agrees that you might need to look elsewhere. “The first thing is to get a job that will allow you to work longer,” he said. “If that’s not your current job, find another.”
One benefit of switching jobs is this: “Workers who voluntarily change jobs in their 50s — that is, presumably they are moving to a ‘better’ job — are far more likely to remain in the labor force at ages 65 and 67,” said Sass. “While less educated men are more likely to be hired into ‘old person’s jobs’ than women or better educated men, this ‘segregation’ in occupational options has declined since the late 1990s.”
Consider part-time work and retiring at different times. If full time work is not an option, often part-time employment income can make a large difference. Also consider: If one spouse may not be able to work longer, can the other spouse work longer? “Both earners retiring at same time may not be an option for some couples,” Keady said.
What else to consider if you want to work longer?
Don’t use your default retirement age. From a pre-retiree’s perspective, rather than using the default retirement age in your retirement plan, override it with a realistic date of retirement based on actual occupation and any health issues, said Keady.
Create a detailed budget. Create a detailed budget to better understand actual projected expenses in retirement rather than a default income replacement ratio. “Be sure to include health-care expenses and any changes to projected lifestyle - such as downsizing of the home,” Keady said. “In some cases, reduced spending may be an alternative to working longer.”
What’s your plan B? Regardless of occupation, Keady said it’s always a good exercise for somewhat older employees to ask: If I have to retire tomorrow, what does it look like in my retirement plan? “Insight is the first step to building a Plan B — just in case,” he said.
Get help. The planning required to work longer and achieve retirement security can be complicated. You may need to work with a professional, said Keady.
Robert Powell contributes regularly to USA TODAY, TheStreet and The Wall Street Journal. Got questions about money? Email Bob at firstname.lastname@example.org.