- 8-Minute Article
- May 03, 2021
Delaying Retirement Could Have Health and Financial Benefits
Technology is changing where and how people work and could make it easier to work past retirement age.
- How can working past the traditional retirement age benefit my retirement strategy?
- How is technology helping people work longer?
- Does working longer have health benefits?
When it comes to retiring, not everyone is ready at age 65. In fact, in one study, 52% of all workers said they planned to work past that age, including 16% 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 providing them with 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 1, 2020.
However, 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. While many current workers said that they expected to retire at age 65, many retirees reported they had retired at an average age of 62, and only 17% reported retiring past the age of 65.2
As financial professionals and their clients discuss a timeline as part of retirement planning, 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 With less time spent commuting, studies show employees tend to work more, increasing productivity. At the same time, employers need less office space to accommodate their workforce when employees are virtual, and may be able to save 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 rate of entrepreneurship among Americans between the ages of 55 and 64 has stayed relatively steady over time.6 Because there are more people in that age group now due to the baby boomer generation being so large, individuals age 55-64 now make up over 25% of all entrepreneurs.6 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.
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 who is forced to work 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 2030.7
“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.8 “Baby boomers are well-positioned because job sharing, project work, and remote work fit perfectly with the way they want to work.”
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 “retirement may be associated with increased cognitive declines for only certain individuals prone to disengage from highly challenging activities and goal pursuits.”9 When employed, older adults are as much as four times more likely to be involved with their community, making them happier and less isolated.10
Working Past Retirement Age Could Be Linked to Health Benefits
In one study, people who worked past age 65 were
Source: Working later in life can pay off in more than just income. Harvard Health Publishing, June 2018.
Social engagement is also one of the important social determinants that play 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 a financial benefit too. Retirees who are lonely or socially isolated, for instance, are four times more likely to be re-hospitalized within a year of an initial hospital stay, so remaining socially engaged as they continue to work may help people reduce their health care costs.11
While every case may be different, research has shown that people who work past 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.12
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 on 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.
Looking for ways to start a discussion about health conditions and their impact on health care expenses in retirement? Try these conversation starters:
- How do you plan to deal with a physically demanding or stressful job as you age?
- Do you plan to work longer to offset increased longevity and the rising cost of health care?
- How might your retirement income plan be affected if you’re unable to work longer?