Many Americans are worried about retirement: what should be anticipated as a time of repose becomes a looming cause of anxiety, because they haven’t sufficiently provided for the cost of living outside the workforce.
Some relief might be found in a paper published by a team from Stanford University: if middle income workers can stick it out at their jobs for an extra six months, they can earn disproportional benefits for their retirement.
Economics professor John Shoven wrote the study with three colleagues, entitled The Power of Working Longer. Shoven says he was caught of guard by what he discovered – going into the study, he believed one would have to work several years in later life to accrue material benefits. In fact, the study found that working only three to six extra months produced a benefit equivalent to saving an extra one percent of your earnings over a 30-year timeframe.
Shoven’s target group involves people aged 62-69 who already have a retirement plan, but realize they will face a lifestyle downturn in retirement if they leave the workforce as they initially planned. Wealthy people were not considered in the study: they are unlikely to need a retirement income bump, in any case. The report focused on the effects of working longer on people earning less than $200,000 per year, who plan to rely strongly on Social Security income in retirement.
How does this work? By deferring the target date for receiving Social Security payments. This isn’t a matter of making greater contributions to SS: that benefits your 401(k), or other plan. With Social Security, it’s simple: the longer you work, the higher the payments in retirement.
For more information, please read:
Retirement Savings Mind Blower: Working 6 Months Longer Makes a Big Difference | ThinkAdvisor