2020 has been a year fraught with stress, anxiety and change—some for the better, some for the worse. We’ve all been forced to rethink goals, dreams, timelines and reality. Retirement plans have not escapedscrutiny either.
At the height of the covid crisis, the Social Security advice site, SimplyWise, conducted its May 2020 Retirement Confidence Index Survey. The survey found:
- 56% of Americans are more concerned about retirement today compared to a year ago.
- 56% are afraid the Social Security trust fund will dry up before or during retirement.
- 49% fear outliving their savings during retirement.
- 40% of workers are now concerned they won’t be able to retire at all.
- Over half of respondents believe their quality of life with suffer after claiming Social Security retirement benefits.
- 67% of working people plan to continue working in retirement.
- One in three saved $0 for retirement in the last year. Women saved even less than men; 37% of women saved $0, and 50% saved under $500.
- One in five people believe it’s likely they will draw from their 401(k) for cash right now, including 1 in 3 of those who have lost work.
- Given the current economic climate, 26% of respondents said they would postpone retirement altogether.
- Of respondents in their 50s and 60s, 33% are now planning to claim their Social Security retirement benefits early.
With the uncertain landscape that lies ahead, it’s no wonder 67% of people plan to continue working in retirement. That may not be what most folks planned for, but there may actually be some advantages to working longer.
The longer you work the more time you’ll have to stash money away into your personal savings or your employer’s 401(k) or other employer sponsored retirement plan. And often you’re getting an employer match in addition to your own savings. Working longer gives you a larger pool of money to draw from once you do decide to retire.
Your money won’t have to last as long
A longer working career means less time you’ll need to use retirement savings to pay the bills. That should stretch those retirement dollars a little farther.
A larger Social Security benefit
Social Security will actually pay you more for working longer in a couple of ways. First is delayed credits. For every year you don’t claim Social Security benefits and you work past your Full Retirement Age, Social Security increases what you’ll receive by 8 percent each year. If you wait to claim benefits until 70, that can mean receiving as much as 32 percent more than if you claimed benefits starting at your FRA.
Second, is a larger amount used to calculate your Social Security benefit. What you receive is based on your highest 35 years of earnings. For example, if you earn $100,000 this year, and the lowest amount you earned in the highest 35 years was $50,000, the $100k replaces the $50k and you get a bigger payment. So, a benefit to working longer is replacing some of those lower earning years and receiving a bigger check when you do decide to stop working.
But the best laid plans can be derailed. About 40% of retirees surveyed in the 2019 Aegon Retirement Readiness Survey said they ended up retiring sooner than they planned. Some of the reasons included:
- Unexpected job loss
- A decline in their health
- The need to be a caregiver for a spouse or parent
Knowing whether to postpone retirement and work longer is not a science. It’s not even an art. It’s a risky calculation at best. What’s the likelihood that your health will decline? What’s your family history of health issues? Does your family line have a history of long life or early death? What about the health of your spouse or another family member you may have to take care of? How much money have you already saved and what do you expect your retirement expenses will be? Or, is working longer a way for you to give something back after a long career, an opportunity to pursue a money-making interest or passion you haven’t time for until now? Those are just a few of the questions to ask before you decide whether working longer makes sense for you?