Delaying Retirement Could Have Health and Financial Benefits

Updated: April 18, 2023

Not everyone is ready to retire when they reach age 65. In fact, in one study, nearly 1 in 5 seniors said they planned to work past the age of 70, including 12% who said they never intend to stop working.¹ Many people choose to work longer as part of their retirement strategy – giving them more time to save for retirement, helping them keep their minds sharp, and allowing them to maintain social interaction.

Number of Americans Working After Age 65 Expected to Increase

Source: Civilian labor force participation rate by age, sex, race, and ethnicity. U.S. Bureau of Labor Statistics, September 8, 2022.

While many current workers said they expected to retire at age 70 or older, only 7% reported retiring past the age of 70. Many retirees reported they actually retired between the ages of 60 and 64. More than one-third of people who retired earlier than planned said they did so because of a hardship, such as a health problem or disability.²

As financial professionals and their clients discuss a timeline as part of planning for retirement, it’s important to be open and honest about the role that health plays and whether it could prevent working longer from becoming a reality. Additionally, there are implications for retirement strategies if there is any gap in perceived retirement age versus actual retirement age. These implications include:

• Number of years someone has to save from their salary
• Impact on Social Security benefits
• Whether someone will receive employer-provided health insurance
• Impact on future pension payments

The good news for those who may want to work longer is that the nature of work is changing. Physically demanding jobs, such as those in manufacturing, traditionally became more difficult as workers aged. In the coming years, technology, an increased reliance on freelance and project-based work, and the increased acceptance of telecommuting could all benefit those interested in extending their careers or pursuing a new one as they near retirement age.

Technology Helps Make Working Longer a Realistic Path

 

As the economy shifts and relies more on technology, automation is expected to help businesses continue to streamline job tasks, which may aid older workers whose jobs will become less physically demanding. Data from the U.S. Bureau of Labor Statistics shows that the percentage of individuals who work beyond the traditional retirement age is steadily increasing.³

Gig Economy and Working From Home Trends Could Benefit Retirees

Due to the COVID-19 pandemic, the adoption of remote working policies driven by emerging communications technology increased.⁴ The pandemic showed that not only is working from home desirable for employees, but employers are becoming more comfortable with the concept. There are potential financial benefits for employers, which could save $11,000 per employee when employees work 2-3 days per week from home.⁴ Studies show that with less time spent commuting, employees tend to work more, increasing productivity. At the same time, employers need less office space to accommodate their workforce when employees are working virtually, and may be able to save on costs by leasing less space.⁴ Researchers expect that, due to the potential benefits for both employees and employers, about 30% of the post-pandemic workforce will work from home multiple days per week, compared to less than 5% who did so before the pandemic.⁵

Employees May Save Money by Working Virtually

Source: The Business Case for Remote Work. Global Workplace Analytics, 2021.

The potential increase in employees who work from home doesn’t necessarily account for the rise in the gig economy – full-time freelancers and contractors, those who choose to work part-time, or entrepreneurs working out of their homes.

The total number of gig economy employees reported by different institutions can vary because some estimates only count contractors for companies, potentially skipping freelancers, ride-share drivers, and many others. There’s also the question of whether someone working multiple jobs as opposed to choosing to work as a contractor should be counted. Some consultants have estimated that gig employees could make up 80% of the workforce by 2030.⁶

“There will be more remote and project-based work, and workplaces will be more collaborative. It will be an evolution of what we are experiencing right now,” says Cheryl Cran, founder of NextMapping, a leadership consulting company.⁷ “Baby boomers are well-positioned because job sharing, project work, and remote work fit perfectly with the way they want to work.”

The rate of entrepreneurship among Americans over the age of 55 has steadily increased over time.⁸ Although this age group only makes up 21% of the U.S. population, they represent over half of all business owners in the country.⁸ It’s important to note that starting a business while nearing retirement may require additional conversations between a financial professional and their client to help ensure that the client’s business can support their retirement strategies and cash flow.

Working Longer May Have Health Benefits

 

In the past, there have been concerns about older adults in the workforce facing a greater risk for injury or health problems. Recent research, however, concludes that working longer could actually have a positive impact on increased longevity and better brain health.

One study concluded that early retirement may be associated with increased cognitive decline as a result of less social interaction and connection.⁹ When employed, older adults are more likely to be involved with volunteer and social activities, making them happier and less isolated.⁹

Social engagement is an important social determinant that plays a role in how health care professionals look at an individual’s overall health, particularly as the health care industry moves toward a value-based health care delivery system. Considering that continuing to work improves social engagement, there can be financial benefits too.

While every case may be different, research has shown that people who work past the traditional retirement age are not only better able to support themselves financially, but they remain healthier and live longer.⁴ As financial professionals and clients talk about plans to work longer, the impact of increasing longevity could be part of the discussion, as it may mean that retirement income needs to last longer.

Financial Impact Can Be Great

 

Working a bit longer before retirement can have a significant positive impact on future retirement income. One study determined that someone delaying retirement from age 66 to age 67 could increase their retirement income by 7.75%. The increases came from additional return on assets, a potential lower cost to purchase an annuity, additional retirement contributions during the year, and a higher Social Security benefit.¹¹

The Financial Benefit of Delaying Retirement

Delaying retirement by 3-6 months has the same impact on a person’s retirement standard of living as saving an additional 1 percentage point of salary for 30 years.

Source: The Power of Working Longer. National Bureau of Economic Research, January 2018.

Financial professionals and their clients should consider these other aspects of retirement planning related to the choice of working longer.

• Will the additional income allow you to delay Social Security benefits, potentially increasing your benefit when you do begin to claim the benefits?
• Will you still qualify for health insurance through your employer, and what is the impact of a transition to Medicare?
• How will any pension be affected by working longer?
• Does working longer give you the chance to grow your health savings account (HSA) balance by making additional contributions?

Even if a person’s health allows them to work longer, there’s always the chance of unexpected roadblocks, such as layoffs or a family need, that could call for retirement plans to be adjusted. It’s important for financial professionals and their clients to remain flexible and prepare a backup strategy. For those who can take advantage of the new way of working and find positions that fit their lifestyles as they age, there may be many financial and health benefits.