Should I Keep Working Longer?


Certainly, not everyone has the option to delay retirement due to a variety of reasons, many outside of your control. However, for those that are nearing retirement and have the ability to keep working or not, the below are some items to consider.


Delayed Portfolio Drawdown

You'll continue to earn a paycheck while you continue to remain employed (obviously 🙄). This means that you won't need to rely on your portfolio to supplement your retirement spending and will allow your portfolio to continue to grow. Additionally, you'll be able to continue making regular contributions to your employer's retirement plan and/or make contributions to your individual retirement accounts (IRA).


Increased Social Security

Your Social Security benefit is a function of two major inputs: your earnings and when you start collecting. Many will have their highest earning years immediately prior to retirement. Working longer helps add to your covered earnings which may mean a larger Social Security benefit when you start collecting.


While you may start collecting benefits as early as age 62, taking an early benefit prior to full retirement age, which depends on when you were born, can result in a reduced benefit of 25%-30%. Ouch! Delaying Social Security can have a dramatic impact on the benefits received. Waiting until age 70 provides the greatest monthly benefit and can result in the greatest overall lifetime benefit assuming you live long enough past the break-even point. You receive an additional 8% for each year you delay collecting past full retirement age. Working longer can help provide a bridge to allow you to delay collecting Social Security.


It should be noted that your monthly benefits stop increasing even if you continue to delay taking those benefits past age 70. If you're in that camp then you should consider claiming your benefits even if you are working past age 70. Furthermore, remember to sign up for Medicare at age 65 if you're delaying benefits as it may cost more if you delay applying for coverage in certain circumstances.


Workplace Benefits Including Health Insurance

We receive many of our benefits including health insurance from our employer. You may already be receiving Medicare if you age 65 or older. However, for younger retirees, this is question that needs to be answered: what will I do for my health insurance between retirement and Medicare eligibility?


A couple of options include getting onto a spouse's plan, if available. Alternatively, you can purchase insurance off of a state exchange. It's a good idea to take a look at the rates to build that into your plan as the premiums may be much higher than you're currently paying through an employer subsidized plan. COBRA can also be an option but the continuation of coverage is typically 18 or 36 months, depending on your particular situation.


Increased Pension Benefits

Similar to Social Security, pensions are often driven by age, years of service, and earnings, typically your final few years. Working longer certainly increase the first two factors - age and years of service - and likely will increase your earnings just by cost of living adjustments. It's important to take a look at your pension payout grid especially as you get closer to vested retirement age as working longer can have a dramatic increase in your benefits.


What can you do?

A recent working paper put out by the National Bureau of Economic Research title The Power of Working Longer makes a case "that delaying retirement by 3 to 6 months has the same impact on retirement standard of living as saving an additional one-percentage point of labor earning for 30 years." As you can see from the above points, there's a lot to think about but the takeaway is that working longer can have a dramatic positive impact. This doesn't meant that you have to remain "stuck" forever.


Consider taking an extended vacation or some time away from work and commit to working for a few more months or years. This allows you to take that dream vacation today and then continue on with batteries refreshed.


Can you go part-time either at your current employer or a new one? It's possible that you can get by just fine with a reduced income that helps cover your current lifestyle and lets your portfolio grow and delay receiving Social Security.


Similar to going part time, a phased in retirement may be more in line with your profession. An attorney may take on less client facing work or a physician may begin seeing fewer patients. You don't have to turn the switch from On to Off but rather a more gradual phase into retirement can give you that intellectual stimulation and some income but perhaps a less demanding workload.


Consider finding employment that better aligns with your values and life mission. That could mean taking a job a different company but could also mean working for a non-profit or faith-based organization.


Consider becoming self-employed or starting a business. While the press tends to focus on the high flying startups built by young people, a working paper put out by the National Bureau of Economic Research titled Age and High-Growth Entrepreneurship states that the researchers' "primary finding is that successful entrepreneurs are middle-aged, not young." Older entrepreneurs have access to human, social, and financial capital that might not be available to younger folks as well as years of experience.


If you're considering retirement, let's chat! Schedule a call here.


Cites:

Bronshtein, Gila, et al. “The Power of Working Longer.” NBER WORKING PAPER SERIES, Jan. 2018, doi:10.3386/w24226.


Azoulay, Pierre, et al. “Age and High-Growth Entrepreneurship.” NBER WORKING PAPER SERIES, Apr. 2018, doi:10.3386/w24489.


Disclaimer:

The above is for general information only. Consult with competent investment, tax, or legal counsel to best understand your unique circumstances before implementing any strategy. There is no assurance that working with a financial professional will improve investment results. All information above is subject to change. Read our firm's disclaimer here: https://www.windingtrailfinancial.com/disclaimer.

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