Working Late

Jonathan Clements

WE NEED FOLKS TO STAY in the workforce longer—for their sake and the sake of the economy. And I don’t think it’s a bad thing.

I’ve written in the past about the demographic challenges facing the U.S. and other developed nations. The 10-second recap: Many of the economic issues we fret about—soaring federal government debt, lower long-run GDP growth, a shrinking Social Security Trust Fund—can all be traced to the same root cause. We’re rapidly approaching the point where we don’t have enough workers producing the goods and services that society needs.

But forget what society needs. I’d argue that, for each of us individually, working longer can also be beneficial—for three reasons.

No. 1: A fatter nest egg. Postponing retirement by a year or two gives us more time to pay off debt, sock away dollars and earn investment returns. We also shorten our expected retirement. That should allow us to squeeze more income out of our retirement savings, especially if we use part of our nest egg to buy a lifetime income annuity.

Indeed, one study found that if folks delayed retirement by a tad more than one month, that would have the same financial benefit as saving an additional 1% of their income over their final decade in the workforce. What if you’re three decades from retirement? Depending on the rate of return assumed, you could match the gain from saving an additional 1% for 30 years by simply postponing retirement by three to five months.

No. 2: A bigger Social Security check. Working longer makes it financially easier to delay Social Security and thereby get a larger monthly benefit—a strategy favored by many financial commentators, including me. What if you’d like to start Social Security early, while also continuing to collect a paycheck? If you’re younger than your full Social Security retirement age—either 66 or 67, depending on the year you were born—you’ll likely run afoul of the Social Security earnings test.

What’s that? Until the year when you reach your full Social Security retirement age, you lose $1 of benefits for every $2 you earn above a threshold amount, set at $17,640 for 2019. The good news: Once you reach your full retirement age, your monthly check will be adjusted upward to reflect the benefits you earlier lost. Despite that, many view the earnings test as a punitive tax—and one study suggests it can discourage folks in their early 60s from working. Hey Congress, want to keep people in the workforce longer, so they stay economically productive and help fill the government’s coffers with taxes? How about nixing the earnings test?

No. 3: A happier, longer life. One study found that working longer seems to increase longevity, at least in men. Meanwhile, there’s ample evidence that a strong social network can bolster happiness and help life expectancy. For many in their 60s, continuing to work will provide that strong social network, while also giving them the sense of purpose that comes with doing work they consider worthwhile.

Of course, this assumes those in their 60s can either find work they enjoy or keep the jobs they have. Historically, that’s been an issue, thanks to mandatory retirement policies and age discrimination. But there are indications that employers are becoming more open to hiring older workers.

You have to imagine this will continue—and not because employers are becoming kinder and gentler. Rather, it’s because they’re struggling to find and retain workers, as huge chunks of the labor force head into retirement each year.

Even if jobs for older workers become increasingly available, are they jobs that these workers can do? The irony: Older blue-collar workers, who are more likely to need continued employment for financial reasons, are in the toughest spot. I could spend decades more sitting here at my laptop, tapping away at the keys. But if I had to spend all day on my feet, let alone carrying heavy items, I doubt I could work much beyond my early 60s.

Follow Jonathan on Twitter @ClementsMoney and on FacebookHis recent articles include House RulesPrice Still Slight and Choosing Our Future. Jonathan’s latest book: From Here to Financial Happiness.

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