Personal Finance

Forget saving more, try working longer

Key Points
  • Delaying retirement for just three to six months has the same impact as saving 1 percent more of your salary over 30 years.
  • However, many retirees wind up leaving the workforce earlier than planned, causing this strategy to backfire. 
Saving More, Working Less
Saving More, Working Less

When it comes to retirement savings, many nest eggs fall short. However, that doesn't mean that you can't retire as planned.

In a trade-off between working longer or saving more, a recent report found that delaying retirement for just three to six months has the same impact as savings 1 percent more of your salary over 30 years.

The power of saving continues to decrease as workers approach retirement age, according to the working paper from the National Bureau of Economic Research.

For example, boosting your retirement contributions by 1 percent for 10 years before retiring has the same effect as working a single month longer, the report said.

Aside from the added income, working longer also allows you to preserve your retirement savings and even keep building those assets in tax-advantaged retirement plans.

At the same time, delaying Social Security past full retirement age lets your benefits grow by about 8 percent a year.

If you wait until full retirement age — usually either 66 or 67, depending on when you were born — you get 100 percent of the benefit available to you based on your personal work record. Waiting until 70 could bring your benefit amount to 132 percent. (Financial advisors generally recommend that you hold off on claiming as long as you can.)

Still, "don't count on working longer to solve a shortfall caused by your not saving enough," said Stuart Ritter, a senior financial planner at T. Rowe Price. "Working longer feels more like a contingency than a strategy. The reality is most people want to retire as soon as they can."

For those nearing retirement, Ritter suggests a part-time job or side gig, which can provide both a "flexible transition" out of the workforce and the extra income they need to enjoy a "semiretirement lifestyle."

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More retirees want a side gig. Here's how to get one

However, there are factors that can limit the ability to work longer, despite the best plans.

Many retirees wind up leaving the workforce earlier than planned, according to the latest Retirement Confidence Survey from the Employee Benefit Research Institute. Reasons include layoffs, health problems and caregiving for a spouse or loved one, advisors say.

To that end, "saving more still helps," Ritter said.

"The more you save, the less you're living on and the less you'll need to retain that lifestyle," he added.

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