Planning to delay your retirement may not save you from a lack of savings

Planning to work longer is a popular escape option for Americans who feel like they haven’t saved enough to support themselves in old age.

About 27% of employees planning to work retire because they need to supplement their income, according to a new survey from CNBC and SurveyMonkey. They surveyed 6,657 American adults in early August, including 2,603 ​​retirees and 4,054 who work full-time or part-time, are self-employed or own a business.

Although working longer is one of the best ways to provide for health care, retirement experts say the plan can backfire.

Employees may not be able to work until their late 60s, early 70s or later, for example because of an unexpected health complication or a layoff.

“On paper, it sounds great,” says Philip Chao, a certified financial planner and founder of Experiential Wealth, based in Cabin John, Maryland. “But the reality can be very different.”

If employees lose those wages, they will have to figure out another way to make their retirement savings sustainable.

Americans generally use a later retirement age “as an escape valve that doesn’t necessarily exist,” Chao said. “But saying it and doing it are two completely different things.”

It could ultimately be a “very dangerous” assumption, Chao said.

Many people who retired earlier than planned (35%) did so because of a hardship, such as a health problem or disability, the EBRI study found. Another 31% of them retired due to ‘changes in their company’, such as a layoff.

More than half, 56%, of full-time workers are in their early fifties are pushed out of their orbit due to layoffs and other circumstances before they are ready to retire, according to a 2018 Urban Institute article. Often, such workers earn significantly less money when they eventually find another job, the paper found.

Of course, some people leave the workforce early for positive reasons: More than a third, 35%, of people who retired earlier than expected did so because they could afford to, EBRI found.

Working longer – for those who can – is a financial boon, according to pension experts.

First, employees can delay withdrawing their savings; so that their savings pot remains intact for longer and can possibly grow further through investment profits and additional contributions. Workers can also delay filing for Social Security benefits, which could increase the amount they receive.

Some people stay working longer because they enjoy it: About a quarter, 26%, of workers say they want to work in retirement, and 17% of retirees continue to work in some capacity because they enjoy it, according to the CNBC retirement survey.

Americans can also receive non-financial benefits working longer means better health and a longer life. However, research shows that such benefits depend on the amount of stress employees experience at work and the physical demands their work entails.

Working longer also seems to be an increasingly possible option for a growing proportion of older employees.

“A shift from a manufacturing economy to one primarily focused on providing services and information makes working older easier,” said Jeffrey Jones, an analyst at Gallup. wrote.