Working longer to maximize social security benefits may fail for most employees
The idea of working longer before claiming Social Security benefits sounds like a great retirement strategy. By continuing to work, you can maximize your bottom line, continue saving for retirement, and avoid using your investments to cover living expenses.
There is only one problem: working longer is an unrealistic option for many. That’s the conclusion of the book “Overtime: America’s Aging Workforce and the Future of Working Longer,” a collection edited by Lisa F. Berkman and Beth C. Truesdale, and published by Oxford University Press in 2022.
“Although today’s middle-aged adults are less financially prepared for retirement than today’s retirees, delayed retirement is not an adequate solution,” the editors write. “Precarious working conditions, family care responsibilities, poor health and age discrimination make it difficult or impossible for many to work longer.”
A financial advisor can help you decide when the right time is to retire. Find a fiduciary advisor today.
A look at the numbers
Working longer to maximize social security benefits may fail for most employees
This conclusion is borne out by the Social Security Administration’s own statistics. While nearly 13% of workers nearing retirement say they will wait to claim the largest possible benefit, only 5% of people are waiting to claim benefits at age 70. Instead, about a quarter of all men and a third of all women opt for benefits. to collect benefits once they become eligible at age 62.
Even worse, The board notices this “[m]ore than one in eight of today’s twenty-year-olds will die before reaching the age of 67.”
Nevertheless, financial advisors continue to promote the idea of waiting to maximize your benefit. On paper, it makes perfect sense: Delaying your benefits from full retirement age of 67 to 70 adds 8% to your benefit amount each year, a cumulative increase in benefits of 32%. And since Social Security benefits adjust for inflation, a larger initial benefit means a larger increase from cost-of-living adjustments.
The problem of working longer
Working longer to maximize social security benefits may fail for most employees
As a 2022 report from the National Bureau of Economic Research noted, “Americans are notoriously poor savers. Large numbers are reaching old age and are too poor to finance a retirement that could last longer than they have worked.” The study concluded that “virtually all U.S. workers aged 45 to 62 would have to wait to collect after age 65. More than 90 percent would have to wait until age 70.”
The idea makes sense and the editors of “Overtime” agree. “Longer life expectancy means Americans need income to support more years of life, and working longer is a frequently proposed solution,” they write.
However, they list five different factors that undermine the concept of working longer to boost retirement income, including “trends and disparities in American demographics, health, family dynamics, jobs and politics,” which are often not taken into account.
The editors outline a range of possible solutions. “A robust pension and disability policy is an essential addition to the policy to work longer.” They add that “longer working policies must be supported by ‘good jobs’ policies to succeed.”
Consider running your retirement strategy through a financial advisor for help evaluating your tradeoffs.
In short
Working longer and delaying retirement is a common strategy recommended for people who are not yet financially ready for retirement. But a new book by Lisa F. Berkman and Beth C. Truesdale argues that this alternative is unrealistic for many. Working conditions, caregiving responsibilities, health problems and age discrimination make it increasingly difficult for older Americans to continue working.
Get matched with a fiduciary financial advisor who can help you create a retirement plan that fits your goals.
Retirement planning tips
How much money do you need to save to retire? Should You Delay Social Security? These are just some of the questions pre-retirees face. A financial advisor can help you answer this. Finding a financial advisor does not have to be difficult. SmartAsset’s free tool matches you with up to three vetted financial advisors serving your area, and you can interview your advisors for free to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Fidelity recommends that you save ten times your annual income for retirement before age 67. To find out if you’re on the right track, try SmartAsset’s retirement calculator. This free tool estimates how much you will have left when it’s time to retire.
Have an emergency fund on hand in case you encounter unexpected expenses. An emergency fund should be liquid – in an account that is not at risk of significant fluctuations like the stock market. The trade-off is that the value of liquid cash can be eroded by inflation. But with a high-interest account, you can earn compound interest. Compare savings accounts from these banks.
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