Opinion: Will working longer save your retirement?

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Opinion: Will working longer save your retirement?


So your personal finances have been devastated by COVID-19 and the lockdowns.

Your retirement plans and hopes have taken a bad hit, either from lost earnings, depleted savings, or both.

But you’re thinking you can make things right by working longer, and delaying the day you start taking Social Security—right?

Not so fast, says a new study.

“Working longer cannot solve the retirement income crisis,” warn Teresa Ghilarducci, Michael Papadopoulos, Bridget Fisher and Anthony Webb at the New School’s Schwartz Center for Economic Policy Analysis. According to their analysis, “working longer increases retirement savings significantly less than predicted by spreadsheet models, which don’t reflect older workers’ real experiences in the labor market.”

They continue: “Working from age 62 to age 70 increases the share of workers financially prepared for retirement by only 18 percentage points, compared to the 46 percentage point increase predicted by the spreadsheet models using overly optimistic assumptions.”

The reason, they say: So many workers in their 60s earn so little that it can’t rescue their savings. And many of those who claim Social Security early, meaning they get a smaller check each month, do so because they need to, not because they want to. 

“More than half (54%) of those claiming benefits while working do so to supplement low wages,” they say. “By age 66, almost half (44%) of workers who claim Social Security earn less than their projected postretirement income and have less than $20,000 in financial assets.”

It’s a kind of perfect storm. For some or many, the wages they can earn in their 60s are so low that delaying Social Security may not be possible, or may not seem worthwhile.

The authors’ analysis is somewhat controversial. Alicia Munnell, director of Boston College’s Center for Retirement Research (and a regular MarketWatch contributor), says the new claims should be taken with caution. 

“It’s a true story for some, but bad advice for many,” she says of the idea that working longer may not be worth it. Delaying Social Security until you’re 70 may not be possible for many low-wage workers, she agrees. But it still makes sense for most workers.

The New School’s analysis rightly highlights the scale of the retirement crisis faced by many, especially those in the poorest third by income and wealth. The argument works best at the macro level: We cannot wave away the retirement crisis simply by telling everyone to work longer if they can’t get decent paying jobs.

On the other hand, I know of plenty of people who started taking Social Security at 62, not because they really had to, but because they wanted to get their hands on “their money” as soon as they could.

But that raises the question: What is the first goal of retirement planning? Is it to maximize your chances of “living well” (or as “well” as possible) throughout the second half of your expected life? Or is it to minimize your chances of ending up old and flat broke? They may sound like similar goals but they’re very different.

As the New School’s policy wonks report, many of those who claim Social Security early are choosing the former. They are “using Social Security to smooth consumption over time,” in line with economic theory, they say. In other words, those individuals are trying not to backload their consumption, spending “too little” in their 60s and “too much” in their 70s and afterward.

I’ll tell you, that’s not my first goal in retirement planning.

Job One for me is to make sure I don’t end up outliving my savings and running out of money when I’m too old to do anything about it. I’m happy to “under-consume” in my 50s and 60s if it’s going to minimize the dangers once I’m old.

If you delay taking Social Security from age 62 to age 70, your eventual monthly checks will be 76% bigger, Alicia Munnell notes. And Social Security constitutes a lifetime annuity that never runs out, is backed by the U.S. Treasury (and, ahem, the Federal Reserve), and rises, sort of, in line with inflation. Try finding that elsewhere. It’s not just income, notes professor Munnell, “it’s the best kind of income.”



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