An academic paper titled “The Power of Working Longer” may lead you to believe it’s imperative to stay at your crappy, old job in order to maximize your retirement income.
But, if you dive deep in the weeds in the paper’s results you’ll quickly see there is a different way of looking at their conclusions.
The paper offers 4 scenarios as to why working another year, 2 or more, will increase your retirement income.
1. Deferring Social Security increases your benefit by 8% a year.
2. Additions to your retirement account while you’re working that extra year or more.
3. NOT taking distributions from your portfolio while working that extra year or more.
4. Increasing age, means a cheaper income annuity when you do retire
All of these scenarios make sense. But what the paper shows is that one scenario, ABOVE ALL ELSE, easily dominates the other 3 combined. Nothing comes close to the one scenario. Under any circumstance at any time.
What is that one circumstance???
Deferring Social Security.
Adding to your portfolio can help, indeed, but’s minimal. Increasing your age helps too as the annuities get less expensive the older you get, but it’s minimal.
Increasing rates of return closer to retirement, or increasing your contribution amount closer to retirement are simply insignificant.
Increasing rates of return over the entirety of your working career can play a factor, but relative to the risk assumed, it’s a big trade off. MUCH more risk for not much more income.
Increasing percentage savings doesn’t come anywhere near deferring Social Security.
So, why does the paper lead one to believe that working longer is key to more sustainable income?
Because they assume working longer = deferring Social Security.
But you can DEFER SOcial Security AND quit your crappy old job too! These two things are NOT mutually exclusive.
Thus, my conclusion is, if Social Security deferral is the primary way to increase retirement income, which it is, you should focus SOLELY on how you can defer Social Security above all else.
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