Why Working as Long as Possible May Not Be a Safe Retirement Bet

Employees are saving more than ever, with average 401(k) contributions in the first quarter of 2019 coming in at $2,370, according to new research from Fidelity Investments — a 15% increase over last year.

While that’s good news, the bad news is that those savings still may not be enough to retire comfortably. Researchers also found that baby boomers had an average 401(k) balance of around $357,000. That may sound like a solid figure, but when you’re withdrawing tens of thousands of dollars each year in retirement, it may only last a decade or so.

If your savings are falling short, you have two options: save more now, or work a few more years to give yourself more time to continue saving. For those who are already stretched thin financially, the first option may not be realistic. In that case, they may decide to work as long as they can to build a more robust retirement fund.

At first glance, that seems like a smart move — and it is, to some extent. But it’s not without its drawbacks.

The perils of planning on a delayed retirement

There’s nothing wrong with working as long as you can. In fact, if your savings aren’t where you want them to be, it’s a good idea to delay retirement. The issue arises when you risk being forced into an early retirement.

More than a third of workers say they plan on retiring at age 70 or later, according to a recent report from the Employee Benefit Research Institute. However, the survey also noted that the median retirement age was 62, and 43% of retirees said they ended up retiring earlier than they had expected — primarily as a result of health issues or job loss.

Furthermore, nearly 8 in 10 workers said they expected to work in some capacity during retirement, but only a quarter of retirees actually did so. In other words, workers are not only retiring earlier than they’d planned (missing out on years’ worth of potential savings), but they’re also not earning as much in retirement as they’d expected.

If you’re basing your retirement plan on being able to work into your 70s, you could be in for a rude awakening if you’re forced into retirement earlier than you’d hoped. Retiring a few years early may not seem like a huge deal, but there are two major disadvantages: First, you’re missing out on more time to save, and second, you’re spending more time in retirement, so you’ll need even more money than you’d planned to last the rest of your life. And if you’re spending, say, $30,000 per year in retirement, retiring even five years early can cost $150,000 more than you’d expected.

That’s not to say that you shouldn’t delay retirement if you’re short on savings. But it is important to have a backup plan in the event that your retirement doesn’t go exactly as you expected.

Using Social Security to your advantage

While you ideally shouldn’t rely on Social Security benefits for the bulk of your retirement income, they can be a game-changer if your personal savings aren’t cutting it. That said, choosing the right time to claim Social Security can impact how beneficial it’ll be.

A major factor determining how much you’ll receive every month is the age at which you begin claiming benefits. You can start claiming them as early as age 62, but if you do that, your benefits will be cut by up to 30%. To receive the full amount you’re theoretically entitled to every month, you’ll need to wait until you reach your full retirement age (FRA), which is between age 66 and 67 depending on the year you were born. If you delay claiming until past your FRA (up until age 70), you’ll receive a bonus of up to 32% on top of your full amount.

Many people choose to retire and claim benefits at the same time, but the two don’t necessarily have to happen simultaneously. In fact, if you have to retire earlier than you’d anticipated, it may be smart to delay claiming benefits to earn those bigger checks.

The biggest advantage of delaying benefits is that you’ll receive bigger checks every month for the rest of your life. So if your personal retirement savings run dry and Social Security benefits are your sole source of income, having a little extra each month can go a long way.

One thing to keep in mind, though, is that if you retire early and also delay claiming Social Security, you’ll need to survive on your own savings until you start receiving benefits. If your savings won’t last that long and you need Social Security just to make ends meet, you may have no choice but to claim earlier than age 70.

Life expectancy is another key factor in deciding when to claim benefits. While you can’t predict exactly how long you’ll live, if you have reason to believe you won’t be spending decades in retirement, it may not be worth it to hold off on claiming Social Security. On the other hand, if everyone in your family has lived into their 90s or beyond, holding out as long as you can to receive more money each month could be a good choice.

Playing the (educated) guessing game

At the end of the day, planning for retirement is a big guessing game. You can plan everything down to the dollar, but if you lose your job a few years earlier than when you expected to retire, that meticulously thought-out plan flies out the window. That doesn’t mean, however, that you can’t be strategic about your retirement choices.

Life will undoubtedly throw curveballs your way. You may be able to work until you’re 100 years old, or you may be forced into retirement at age 60. There’s nothing wrong with planning on working longer, but if you can roll with the punches and adjust your plans when unexpected challenges arise, you’ll be prepared for anything.

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