Can Working Longer Help if You Don’t Expect to Be Able to Retire?

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It’s no secret that despite the large following garnered by the FIRE movement, an acronym for Financial Independence – Retire Early, the retirement reality in the U.S. is dismal.

American workers’ retirement savings lag far behind where they should be to provide a comfortable retirement.

Many who face this situation say they plan to continue working longer, at least part-time.

This makes sense to David Berns, Financial Planner, Truadvice Wealth Management, who points out the benefits of working longer, “Retirees who work longer may be pleasantly surprised if they enjoy what they currently do. By working longer, we can defer Social Security, let assets grow, and find a sense of purpose during our golden years. The biggest capital we have is our human capital, as more retirees realize. We advise clients to find something they enjoy doing, even if it’s part-time work. Not all seniors can play golf and pickleball all day, so working during your retirement years is a great option.”

While this is a great way to delay and reduce how much you draw down your nest egg, it’s not a given that you’ll be able to do as you plan.

Here’s why…

Retirement-Age Expectations

According to a 2016 Gallup poll, only 25% of non-retired U.S. workers who were willing to say when they expected to retire said they expect to do so before age 62.

Another 41% expected to retire somewhat early, between the ages of 62 and 67.

The remaining 34% expected to retire later than age 67.

The average expected retirement age stated was 66, up from about 64 in the mid-2000s and from 60 in 1995.

Younger workers estimated a somewhat lower retirement age than their elders. Unsurprisingly, those making a higher income seemed more optimistic than those earning less.

The problem worsens when you consider that the Gallup poll found that retired Americans, on average, retired at age 61, with 43% of those reporting a retirement age saying they retired before age 62. Only 14% reported having retired at age 67 or later.

The 5-year discrepancy in expected vs. actual average retirement age shows that working Americans are likely overestimating how long they’ll be able to keep working. The fact that while only 34% expected to retire early, while 43% actually did so, further emphasizes this disconnect.

Causes for Early Retirement

What drives this disconnect between the expected and actual length of a working career?

It’s a combination of several factors:

Health problems
Family needs
Layoffs and (illegal but hard to prove) age discrimination
Lack of sufficient work opportunities in specific fields

Retirement Savings Massively Lag Needs

Unfortunately, the median size of retirement portfolios amassed by Americans approaching retirement age is nowhere near enough to fund a reasonably comfortable retirement. According to a Transamerica Center for Retirement Studies 2015 survey, median retirement savings for Americans in their 60s was just $172,000. Using a conservative 3.5% assumed initial draw, that would provide a long-term contribution toward retirement expenses of just $502/month!

Clearly, despite the fact that over 40% of workers end up retiring early, the median savings amassed toward retirement for even the oldest workers is nowhere near enough to allow financial independence, forcing uncomfortable choices in retirement.

However, Kevin Estes, Founder & Financial Planner, Scaled Finance has some good news regarding costs in retirement, “Healthcare expenses tend to rise with age, but not as much as many fear. Medicare eligibility usually starts at age 65, and if you sign up once you’re eligible, pre-existing conditions aren’t considered in the registration process.

“Fortunately, other expenses tend to fall in retirement. Children are often grown and flown. College tuition bills (and loans) may finally be paid off. Social Security and Medicare payroll taxes stop. Transportation and clothing costs drop due to eliminating daily commutes and the need to ‘dress to impress.’ Homes are often paid off or at least balances are low, so interest costs are as well (while you make the same payment, more of it just moves money from your checking to your home equity). Overall, the further you are into retirement, the lower your costs. Dan Keady, a CFP^® Board Ambassador, explains this by referring to three stages of retirement: Go-Go years (age 65 to 75); Slow-Go years (age 76 to 85); and No-Go years (age 86 to 100). Finally, as you grow older, you have fewer years you need to fund.”

What You Can Do About Your Own Situation

There are several things you can do (and should consider doing) if the above rings true for your situation.

Articulate your personal financial goals, including the ability to retire in comfort
Quantify how much you need to set aside to accomplish those goals
Review your spending to make sure that it aligns with your goals and priorities
Modify your spending where it fails to align
Find ways to increase your income and/or reduce your costs
- Move to a different position and/or employer with a higher salary
- Make yourself (more) indispensable to your supervisor, and parlay that into a raise
- Start a side hustle
- If you already have a side hustle, consider scaling it up to a full-time business
- Reduce your costs by e.g. house-hacking, refinancing a mortgage, etc.

Eric Maldonado, CFP^®, MBA, Owner, Aquila Wealth Advisors, LLC adds, “If your goal is to work longer, that’s great! One way to ensure it happens is to always optimize your career changes toward fulfillment. In other words, with each new position or career move you make, prioritize enjoyment of doing that role. If you often make work decisions based on what you enjoy most, you’re more likely to continue working longer than the average American worker. Who would want to quit doing a job they love doing? That’s where you want to be. And if you can’t be there now, try getting closer with each career move.”

The Bottom Line

If your retirement savings are anything like the sad median of all American workers, you may find yourself forced to continue working past retirement age.

However, health or other factors may prevent you from doing so.

This means you need to take concerted action now to make the most of the time you still have and get on track for a comfortable retirement starting from wherever you already are. The above list offers some ideas to get you started.

Find a Financial Advisor

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This article originally appeared on Wealthtender. To make Wealthtender free for our readers, we earn money from advertisers, including financial professionals and firms that pay to be featured. This creates a natural conflict of interest when we favor their promotion over others. Wealthtender is not a client of these financial services providers.

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Disclaimer: This article is intended for informational purposes only and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.