A Little Patience Now May Have A Big Pay Off During Retirement


Saving up for retirement is something that nearly every American worker does to some degree or another. Through pension plans, 403b's, 401k's, and IRA's, there are multiple avenues we can use to save up money for the time we finish our full-time work life. One additional source of income that many seniors rely on is Social Security as well; after all, they've paid into it their whole lives and expect that money to be there during retirement.

As much as we all expect Social Security to be there for us when we retire, but what if it's not enough to survive on? According to a recent poll by the Employee Benefit Research Institute, nearly 40% of Americans are "not too confident" or "not at all confident" about what the state of their finances will be once they stop working.

One of the most common recommendations to counter this is to save more money during one's working lifetime. That's certainly something that can help, but what about those who are nearing retirement age right now? Well, one option to increase their income during retirement is to just work for a little bit longer, and hold off on claiming Social Security.

In a recent working paper released by the National Bureau of Economic Research and the Stanford Institute for Economic Policy Research, we found striking results when comparing two ways to increase retirement living standards: For most people approaching retirement, working just a little longer can substitute for a lifetime of saving more.

Suppose you are the primary earner in your household and started saving for retirement at age 36. Your plan is to fund your 401(k) by contributing 9 percent of your salary for 30 years until you reach age 66. At 66, you plan to retire, draw Social Security, and use your 401(k) balance to augment your income by purchasing an inflation-indexed joint and survivor annuity.

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