August 6, 2013
Desperate to Retire? Don’t.
A new article in the Journal of Financial Planning lays out the unpleasant reality facing baby boomers who really want to retire but can’t afford it: working longer helps a lot.
In the article, David Blanchett, who heads the retirement research group for Morningstar’s money management unit in Chicago, calculated the impact of delaying one’s retirement date and found that it can sharply improve a retiree’s odds of financial success.
“There is not one silver bullet for success but if there were it would be delaying retirement,” he said in an interview.
The same case has been made for years by the Center for Retirement Research at Boston College, which supports this blog. Working beyond age 62, when individuals are first eligible to receive Social Security benefits, helps in three important ways:
- Monthly Social Security benefits increase by about 8 percent for every year that filing is delayed.
- Workers have more time to save through their 401(k)s at work.
- It reduces the number of years that individuals are actually in retirement.
Blanchett found, when he looked at an individual’s probability of retiring comfortably, that every one-year delay in your retirement date increases your probability of success by at least 10 percentage points.
Translating that, say you have a 45 percent chance of having sufficient retirement income from your Social Security, savings, and any pension you might have. Delaying one year would increase the probability of success to more than 55 percent – and to about 65 percent by delaying for two years.
All the evidence points in the same direction: working longer helps. It’s also one thing that an older worker who’s nervous about their retirement security can actually do something about.