A retirement plan for those who are coming up short

Many workers in their late 50s or early 60s might have saved a lot of money for retirement, but when they do the math to see if they have enough saved up, they still fall short of a comfortable and financially secure retirement. The big challenge: It takes a lot of money to be fully retired for 25 years or more, which can easily be the case for many older workers today. 

Another challenge is that many older workers are tired of their current jobs, for various reasons that are entirely understandable. Perhaps they’re burned out or bored, they’re fed up with the daily grind, they don’t like their work environment, they’re tired of the commute, they want to spend more time with family and friends or they want more time to pursue hobbies and interests. For them, full retirement may not be the best answer to these problems, particularly because it might not be financially feasible.

If you feel this situation might apply to you, check out this possible solution for these challenges from a recent project by the Stanford Center on Longevity (SCL), in collaboration with the Society of Actuaries (SOA). The answer is simple but powerful: Find a new work situation that addresses your specific work problems, pays you enough to cover your ongoing living expenses and allows your current savings and Social Security benefits to continue growing.

The SCL/SOA report contains estimates showing that if 65-year-old retirees delay drawing down retirement savings for five years -- until age 70 -- they can increase their total retirement income by 25 percent to 34 percent or more. This is possible even if they make no additional contributions to savings or accrue any additional investment earnings during this five-year period. Additional contributions or investment earnings only improve the outlook. 

Using this strategy, you might find that you need to make less money than what your current job offers, perhaps by working part-time so you have more time for family and friends, or to pursue your interests.

To see if this strategy might work for you, take a hard look at the level of income you really need to meet your living expenses. In addition, think about the most compelling problems you have with your current job and how you might mitigate these problems. In the process, you may identify a solution to your challenges that’s more realistic to implement than retiring full-time.

You might also reap nonfinancial bonuses. Work can give you valuable social connections, which research shows is beneficial to your health and longevity in your later years. Some provocative evidence even shows correlations between working and better health and longevity, although it’s not clear if working actually causes these favorable outcomes.

Why does this strategy create such a significant increase to your retirement income? Delaying the drawdown of your retirement savings provides a powerful double boost to your retirement income: By letting your savings grow with investment earnings and appreciation for five more years, you’ll increase your retirement funds and have five fewer years that your savings needs to support a full retirement.

The reason delaying the start of Social Security benefits increases your projected retirement income is that the increase factors Social Security uses to adjust your benefits (called “delayed retirement credits”) are more generous to retirees than a pure actuarial increase would be. The delayed retirement credits haven’t been adjusted to reflect today’s low interest rates and recent improvements in mortality. So many older workers will get a really good financial deal from Social Security if they can delay the start of benefits as long as possible.

If you’re frustrated about the time and effort it might take to work through possible solutions to your particular challenges, or if you’d rather retire as soon as possible, consider the alternative. Compared to prior generations, the current generation of older workers has been given a gift of a few more decades of life. If you had been born 100 years earlier, you might have died even before your current age.

This thought should give you the enthusiasm and motivation you need to take on the challenges of balancing your work, financial resources and retirement, and making a good plan that works for you for the rest of your life.