Is Working Longer A Viable Retirement Plan?

Mark P. Cussen

The turbulence in the stock and real estate markets during the past five years has effectively forced many older workers to rethink their retirement plans. A large percentage of pre-retirees have seen their nest eggs decline by 25 to 50%, and that doesn't count the drop in home values. As a result, many of those facing this dilemma have decided to keep working as a means of shoring up their retirement savings.

A Sensible Alternative

For previous generations, retirement generally only lasted a few short years before death. However, longer life expectancies and corporate cutbacks have combined to lengthen retirement to 30 years or more for many Americans. The cost of fully funding a nonworking segment of one's life for that length of time can be staggering, and this expense is compounded by the uncertainty of Social Security. A recent survey by Transamerica revealed that 40% of the respondents have resigned themselves to working longer and retiring later. Another 39% said that they were going to work until at least age 70 - or for the rest of their lives. And 54% of respondents are planning to work in some capacity during retirement . Working longer clearly seems to be the preferred alternative for the majority of those who need to replenish their portfolios, and with good reason. There are two main advantages to this approach.

Increased Savings

Those who are near the end of their careers are most likely earning as much or more than they ever did before. These high earnings mean that older workers have more cash flow available to use for retirement savings contributions. The odds are also greater that they are either mostly or fully vested in their company's retirement plan .

Those who choose to continue working in order to beef up their nest eggs should seriously consider making the maximum contribution to their plans, which was $17,000 in 2012 for those under age 50 and $22,500 for those age 50 and above. After all, if they decide to keep working after their original retirement target date, then every dollar they make at that point is additional income that they hadn't initially planned on receiving. As such, it may not be much of a shock to their budgets to divert the majority of their current earnings to their retirement savings. Five years of maximum contributions for a 65-year-old would net an additional $100,000 of principal into retirement savings, plus any investment income that accumulates on that money. If the retiree doesn't want to dip into his or her principal, then he or she could probably use it to generate an additional $2,000 to $4,000 of income per year, with low to moderate investment risk.

Shorter Retirements

The other major advantage that those who work longer will realize is a reduced period of time for which they have to save . Someone who lives to age 90 and works to age 70 will not have to save as much as someone who lives to 90 and stops working 10 years sooner. Even a five year difference will have a substantial impact on the amount that must be saved in order to fund retirement.


Larry wants to retire at age 65 and he projects that he will live to be 85. He wants to draw $20,000 of retirement income each year in addition to his Social Security income, and he would like to use up all of his nest egg before he dies. If he earns 5% per year in his portfolio, he will need to have approximately $250,000 saved in order to achieve his goal.

Mabel also estimates that she will live to age 85, but she is willing to work until she turns 70. She wants the same amount of annual investment income as Larry, and is also willing to exhaust her principal. If she also earns 5% per year on her money, then she will only need about $207,000 of principal.

The Bottom Line

Delaying retirement by just a few years can pump new life into a retirement plan that has been deflated by falling stock and home prices. Delaying Social Security benefits while continuing to work can be especially effective, as long as it is feasible. You may need to be prepared to work a different job, as companies often terminate older workers in order to hire younger replacements who will work for less. For more information on whether you should work longer to help fund your retirement, consult your financial advisor.

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