Should working longer be a part of your retirement plan?

Christine Benz 2 August, 2019 | 2:07AM Mark Miller
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Christine Benz: Hi, I'm Christine Benz for Working longer can make a lot of financial sense, but it's not achievable in every case. Joining me to discuss that topic is retirement expert Mark Miller. Mark, thank you so much for being here.

Mark Miller: Hi, Christine.

Benz: Mark, let's talk about working longer. When you look at labor force participation rates, we do tend to see older people are staying in there a little longer.

Miller: Definitely. Yeah. I mean, that's really the good news is that a lot of people have caught and got the message about the value of staying in the workforce longer in terms of bolstering retirement security and of course, with a really strong economy there is labor demand. And so, more people are finding the ability to work is there. More employers are starting to figure out that, gee, maybe I better figure out ways to keep my older workers employed and happy because they need workers. So, that is a really dramatic change from certainly back, you know, during the depths of the Great Recession. Older workers took it pretty hard in terms of job loss.

Benz: It took them a long time to replace the jobs that they lost, too.

Miller: Yeah, exactly. So, we're seeing higher labor force participation rates across the board, but definitely among older workers, too.

Benz: Okay. So, let's discuss the financial positives for workers in terms of staying in there. Why might people consider this as a part of their retirement planning?

Miller: Yeah, I think, it's one of the most powerful levers you can pull in terms of your retirement plan and improving your retirement security. There's several reasons for it. One is, you're going to have fewer net years of life that have to be funded out of your retirement assets and more years that are funded through work. It sets you up to delay your Social Security filing. And as we've discussed often, that's really positive. You get 8% additional benefits for every 12 months that you delay, give or take, starting at 62, when you can file up to 70, which is the last year in which additional credits are available. I mean, net it out, it can be a 70% boost in your monthly Social Security benefit across that span. So, that's huge. It can mean more years of socking away money in a retirement account. And these are years where you can do the catch-up saving. So, for some households, maybe some expenses are in the rearview mirror--college tuition and the life for kids. It can be years where you can sock away a lot more money. So, in several different ways, it can really be very, very powerful. So, it's a great aspiration.

Benz: Okay. And you often make this point. Great aspiration, not necessarily a plan.

Miller: Right.

Benz: So, let's talk about how there can sometimes be a disconnect, and the data show that there's a disconnect, between someone's stated desire to retire at X age versus when they actually do retire. What do the data show?

Miller: Yeah. The scariest thing I hear from people is, "My plan is, I'll work forever." This really worries me because the data show that, 40% to 50% of people wind up retiring earlier than they projected or plan to do. And that happens for a variety of reasons. So, it is a terrific thing, if you can pull it off, but you need to also have a Plan B, I say.

Benz: Okay. So, a variety of reasons, health considerations, or maybe spouse health considerations--

Miller: Health is a big one. Job loss still is an issue, even though as we were discussing, the economy is strong. Burnout, you know, people tend to underestimate their ability to just hang in if it's not work that they love. And then, it's interesting, when you--I've interviewed a researcher for a story on this who's taken a close look at the survey data on why people wind up leaving earlier. And what he said--he said something interesting is that these reasons that you and I were just discussing, only really explain maybe a third of the early departures. He says there's a whole lot going on out there that we don't have a good handle on, that's harder to measure. So, those are the reasons some of the time, and other things happen.

Benz: Okay. More work to be done there. Let's discuss what's in the toolkit for people, and I think this describes a lot of pre-retirees. They're looking at their portfolios, maybe they've seen them nicely enlarge, but they're still worried about a shortfall.

Miller: Right.

Benz: So, what are the other levers that they can pull? Working longer might be one piece of it if they can, but what other things should they think about?

Miller: I think one thing that is worth thinking about is thinking carefully about your career trajectory as early as, let's say, age 50. Think carefully about, is this a job that I think I can stick with to whatever my projected retirement age is or not? If not, think strategically about a change. Maybe you should be changing employers or the career you're doing, or do you want to go off and do something independent where you have more control. There's a lot of interesting work being done out there by people who specialize in this part of it--kind of career strategy for midlife. I've written a lot about it--

Benz: Yes, you have.

Miller: Others have, too. And so, I think I would start with that. But beyond that, I think Plan B is to save as much as you can, because that's your cushion. And then, if you were able to save enough that--let's say, you have to leave the workforce earlier than you hoped, you might still be able to delay that Social Security filing by living off of some of those savings for a few years, bridging it, if you will.

Benz: Important topic. Mark, thank you so much for being here to discuss it with us.

Miller: Thank you, Christine.

Benz: Thanks for watching. I'm Christine Benz for Morningstar.

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Christine Benz

Christine Benz  Christine Benz is Morningstar's director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. Follow Christine on Twitter: @christine_benz.

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