How to Determine Your Expected Retirement Date

Key Takeaways

• When you work longer, you are able to continue making retirement plan contributions, which benefit from additional years of compounding. If you’re investing inside of a tax-sheltered account, you get additional years of tax deferral. You also may be able to delay Social Security.
• If a person has a pension, and additional years of service are not going to increase that benefit, they will not see as many of the financial benefits of working longer. There can also be knock-on tax effects and Social Security effects.
• One reason to think twice about working is if you or a loved one has a health condition that is limiting your ability to work. Another health consideration is if you have reason to believe that you do not have a very long life expectancy.
• Reasons to continue working aren’t just financial. If you want to keep working, you could potentially do something that you find rewarding, but pull back a little bit in terms of the hours or the intensity of the work.
• People should bring a dose of humility to their retirement date. What we see when we look at the data on people’s retirement dates is that people tend to overestimate how long they’ll be able to work.

Susan Dziubinski: Hi, I’m Susan Dziubinski with Morningstar. For many, working longer and retiring later can bring financial benefits, but it’s not the right answer for everyone. Joining me to discuss how to conduct a cost-benefit analysis of working longer is Christine Benz. Christine is Morningstar’s director of personal finance and retirement planning and author of a new book that’s coming out this fall, How to Retire: 20 Lessons for a Happy, Successful, and Wealthy Retirement. Christine also hosts The Long View podcast.

Thanks for being here, Christine.

Christine Benz: Susan, it’s great to see you.

Financial Benefits of Delaying Your Retirement Date

Dziubinski: People watching have very likely heard about the financial benefits of working longer. Can you discuss why continuing to work longer rather than retiring fully right when you technically reach retirement age can make so much sense from a financial standpoint?

Benz: Right. Obviously, you’re continuing to earn an income. That’s a big one. You often also are able to continue making retirement plan contributions, which benefit from additional years of compounding. If you’re investing inside of a tax-sheltered account, you get tax deferral, additional years of tax deferral. If you’re working, you may be able to delay Social Security. I’m sure people have heard millions of times about the virtues of delaying Social Security, but you basically enlarge your eventual benefit. And so that’s one reason why if people are looking at their retirement plan assets, worried about whether they will have enough, an easy piece of advice is if you can, if you’re able to, consider working because the financial effects are many.

Are There Downsides Financially to Working Longer?

Dziubinski: Can working longer ever really be a negative from a financial perspective?

Benz: Well, not necessarily a negative, but there can be a few situations where it’s not going to benefit you as much. So, the great example would be the person who has a pension, and their benefit is what it is, and additional years of service are not going to increase that benefit. And then there can also be knock-on tax effects and Social Security effects. Especially if you’re continuing to work and you’ve already filed for Social Security, you really want to get some advice there because you may want to continue working for a lot of reasons, but the financial benefits may be curtailed by some of the tax and Social Security effects that you experience.

Is Working Longer Before Retirement Right for You?

Dziubinski: What about the job itself and quality-of-life considerations, Christine? What factors should people be considering in deciding whether working longer is the right answer for him or her?

Benz: This is the piece that I think really gets underplayed, Susan, and we talk a lot about this in the book that I have coming out, because it is very easy to dispense that advice saying, “Keep working.” But there are lots of reasons that maybe people would want to think twice about working. One would obviously be if you have some health condition that is limiting your ability to work or maybe you have a job that’s physically demanding and it just becomes untenable to continue doing that job, or we might have spousal health issues, older parents with parental health issues. Another kind of health consideration is if you have reason to believe that you do not have a very long life expectancy. Working may not be the best thing to do with your time. You may have other things that you want to accomplish. So, those are all considerations, kind of softer considerations that frankly I think get underplayed when people like me are admonishing everyone to continue working. Not everyone should continue working or is necessarily able to do so.

Options for Preretirees to Continue Working

Dziubinski: What about the middle ground then, Christine? You often talk about that, perhaps you can continue working in some capacity. Talk a little bit about that.

Benz: Right. I love this idea, Susan. We were just talking before we got rolling about how 40 hours is a lot of time to give to an employer. Could you potentially do some job that you find rewarding but pull back a little bit in terms of the hours or maybe just in terms of the intensity of the work? So, a job that I always kind of envy when I see people doing it is the person working at Trader Joe’s, and maybe Trader Joe’s is a terrible place to work, but it seems like a place to have some contact with other human beings, be around food, which I enjoy, and not have the intensity, not the intellectual intensity of working, which for people who have had really intense jobs, that might feel really good. So, I always say, especially, if you’re in good standing with your employer, explore whether there are areas where you can kind of pull back, perhaps on things you don’t love as much, and emphasize those things that you love because the benefits of continuing to work aren’t just financial. There are relationships, there are social considerations, there’s a bit of physical activity, and there are lots of good reasons to continue working that aren’t just financial.

Bring a Dose of Humility When Deciding Your Retirement Date

Dziubinski: You think people should bring a dose of humility to their retirement date. What do you mean by humility?

Benz: For sure. I always get nervous when someone’s like, “I want to retire on Feb. 1, 2028,″ or something like that. And it’s a worthy aspiration. Our Morningstar contributor Mark Miller always says it’s a worthy aspiration, it’s not a plan. Because what we see when we look at the data on people’s retirement dates is that people tend to overemphasize, overestimate how long they’ll be able to work. In general, we see a little bit of a disconnect where you’ve got people retiring in the 60- to 65-year range who maybe had planned to stick it out even past age 70. So, you should have, especially as you age and move into your retirement years, build in a contingency plan. Maybe your best guess is that you’ll retire at age 68 or 70 or whenever it may be but build in some kind of buffer. What would you do if you needed to or wanted to retire a bit earlier? So, I do think the work that our former colleague, David Blanchett, did on retirement dates and retirement spending is really valuable in this context.

Dziubinski: Well, Christine, thank you for your time. And we look forward to the book in the fall.

Benz: Thank you. Me too.

Dziubinski: Good to see you. Take care.

Benz: Good to see you too.

Dziubinski: I’m Susan Dziubinski with Morningstar. Thanks for tuning in.

Watch 8 Little-Known Facts About RMDs for more from Christine Benz.