Americans are facing a retirement crisis, with many feeling ill-prepared to support themselves in old age due to inadequate savings. As a result, delaying retirement has become a popular strategy for those looking to shore up their nest egg. A recent CNBC and SurveyMonkey survey found that 27% of workers intend to work in retirement to supplement their income. While working longer may seem like a practical solution, retirement experts caution that it may not always be a foolproof plan.
The Reality of Delaying Retirement
Philip Chao, a certified financial planner and founder of Experiential Wealth, warned that the idea of working longer to bolster retirement savings may sound good in theory but could prove challenging in practice. Unexpected health complications, layoffs, or other unforeseen circumstances could derail this plan, leaving workers scrambling to find alternative sources of income to make their savings last.
According to the Employee Benefit Research Institute (EBRI) survey, 35% of people who retired earlier than planned did so due to hardships such as health problems or disabilities, while 31% cited changes at their company like layoffs as the reason for their early retirement. This highlights the precarious nature of relying on working longer as a safety net for inadequate savings.
The Illusion of an ‘Escape Valve’
Chao pointed out that many Americans view a later retirement age as an “escape valve” that may not actually exist. While the intention to work longer may be well-meaning, the reality is that circumstances beyond one’s control could force an early exit from the workforce. A 2018 Urban Institute paper revealed that 56% of full-time workers in their early 50s were pushed out of their jobs due to layoffs and other factors before they were ready to retire, often resulting in lower earnings if they found another job.
The Risks of Early Retirement
While some individuals choose to retire earlier than planned for positive reasons, such as financial security, the majority are forced into early retirement due to external factors. This highlights the inherent risks of relying on working longer as a solution to poor savings habits. It’s essential for individuals to have a backup plan in place in case they are unable to continue working as long as they had hoped.
Benefits of Working Longer
Despite the potential pitfalls of delaying retirement, working longer can offer significant financial advantages for those who are able to do so. By postponing drawing down their savings, individuals can keep their nest egg intact longer and potentially allow it to grow through investment profits and additional contributions. Additionally, delaying Social Security benefits can result in higher monthly payments, providing a reliable source of income in retirement.
Furthermore, working longer can have non-financial benefits as well. A quarter of workers surveyed expressed a desire to work in retirement, while 17% of retirees continued to work in some capacity because they enjoyed it. This indicates that work can provide a sense of purpose, fulfillment, and social connection, which are important factors in overall well-being.
The Changing Landscape of Retirement
As the economy shifts towards a service and information-based model, the opportunity to work longer is becoming more feasible for older workers. Jeffrey Jones, a Gallup analyst, noted that this transition away from a manufacturing-centric economy has created new possibilities for individuals to extend their working years. With the right support and resources, older Americans can continue to contribute to the workforce and reap the benefits of working longer.
In conclusion, delaying retirement as a strategy to compensate for inadequate savings is not without its challenges. While working longer can provide financial security and other benefits, unforeseen circumstances can disrupt this plan. It’s crucial for individuals to assess their retirement preparedness realistically and consider alternative options to ensure a comfortable and secure future. By staying informed, proactive, and adaptable, Americans can navigate the complexities of retirement planning effectively.
