Why You Should Work Longer Before You Retire

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If you read my depressing (but honest and realistic) post about retirement last week and you’re back for more, thank you – and hang in there with me.  The unfortunate fact is that our parents and our parents’ parents got the last great deal on retirement.  My generation (Gen X) and generations to come will have to rewrite the book on how to retire.

First, let’s look at the “why” of working longer before retirement.  Then, in future posts, I’ll give you some strategies and ideas about how to make working longer more appealing.

The Bad News

Life expectancy.  Despite recent studies showing a slight decline in life expectancies, in general, we are living far longer than prior generations.  And longer lives cost more money.  Living five to ten (or more) years longer than prior generations requires building a nest egg to support those extra years.  In addition, longer lives likely mean greater health care expenses.  See our previous post on the subject.

Medicare and insurance costs.  Long gone are the glory days of retiring from your thirty-year corporate career with a fat pension.  Not only are pensions extinct (or nearly so), retirement before age 65 can be financially catastrophic due to health insurance costs.  Want to retire at age 55?  You’ll have to foot the bill for private health insurance for ten full years before Medicare kicks in.  You don’t need me to tell you how expensive that is.

The “Sandwich Generation.”  Increasingly, 50-somethings are finding themselves in a pickle.  They may be putting kids through college, or they may have kids who have finished college but are having trouble  making ends meet and subsequently have moved back home.  Meanwhile, those same 50-somethings have aging parents that need support in the form of time and money.  It’s a potential recipe for disaster.

The Good News

Social Security benefits are higher.  The longer you wait to claim your Social Security benefit, the larger your benefit will be — to a point.  The earliest eligibility for retirement benefits is 62.  Starting then, however, means an approximate 30% permanent decrease in your benefit versus waiting to begin claiming Social Security at age 66.  Delaying claiming Social Security past age 66 (“Full Retirement Age”) adds about 8% each year to your benefit.  At age 70, your benefit is significantly higher than it would have been had you begun claiming benefits at age 62.  There is no benefit to waiting past age 70.  (Source: Social Security Administration)

You’ll potentially have a larger nest egg.  Continuing to work and delaying retirement also allows you to bank more money for your golden years.  A few more years of contributions to your retirement plan is definitely a positive, but the big money driver is compound interest.  Having five to ten more years to grow your diversified portfolio makes an enormous difference in how much you have to spend in retirement.

You’ll potentially have less debt.  Working a few more years also affords you the opportunity to aggressively pay down your debts.  Having fewer debts in retirement certainly means less stress.  But reducing debt also results in needing less income in retirement to service that debt.

The Bottom Line

Working longer before retiring can have a very positive impact on your financial life.  Avoiding the excessive spend-down that longevity and health care costs can bring is hugely advantageous.  Likewise, having a larger Social Security benefit, a more robust portfolio, and less debt all factor into reducing the stress of retirement.

I can see you shaking your head and thinking, “there is ZERO chance I’m going to work in this awful job a moment longer than necessary!”  Take heart.  In my future posts, I’ll share some creative ways to reach retirement without losing your will to live in a job you hate.

Comment below with your top retirement worries, and I will ensure they are covered in the series.


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2 responses to “Why You Should Work Longer Before You Retire

  1. I wish I had better financial ‘smarts’ when I was younger. I raised three young kids on a secretaries salary in a beautiful home. I stayed in my home after my divorce when they were 4, 7, and 10, so about 75% of my salary when to the mortgage. I borrowed against an IRA when I was challenged and realized that was a poor choice. So after sleepless nights and a call to my mortgage company, they told me about a line-of-equity loan. Stupidly, I borrowed against my home three times over the years so now I owe $300K on my home, but it’s worth $700K w/the inflation going on right now. I have $150K in a low-risk IRA and $50K in a managed medium risk IRA and no debt other than the mortgage. I love my job and hope to work until I’m 70 (I’m 61 now). Ideally, I’d like to have my mortgage paid off before I retire but can’t see that happening. I know I should downsize – it’s the right decision but would love to figure out how to pay down on it when I’m still paying 59% of my income on mortgage payments (including $200 extra principle each month). I do live quite frugally, now, although I lease my car for $250 a month. I probably should buy a car instead of lease but I was spending more than that a month in car repairs before I starting leasing and I get a new car every three/four years.

    1. Hi Debra! Sounds like a tight situation. It all depends on how you feel about it. If the high expense of carrying that larger house is a source of stress, then maybe downsizing is the answer. If you are managing fine and happy being in the house and the amount of expense and debt don’t bother you, then carry on! You can always decide later, so if for now you are happy, great. In a year (or whenever) you might wake up and decide you want to lift the weight of the debt, so you’ll downsize. 🙂 Thanks for visiting!

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