1: It literally pays to work, and MONEY can buy peace of mind
How is this possible?
Working longer gives you more time to save. If you keep working for even two additional years, that's two more years to sock away money into your retirement accounts. Remember, Uncle Sam allows workers 50 and older to make catch-up contributions to their 401(k)'s and individual retirement accounts--for a total of up to $20,000 and $5,000, respectively, this year. Max out on both for two more years, and that's $50,000 of extra tax-sheltered savings. Since retirement can easily last two decades or longer, that $50,000, if properly invested, could grow to nearly $200,000 by the time you really need it.
You can delay taxes. Withdrawals from your 401(k) or a traditional deductible IRA will be taxed as ordinary income. But if you work longer than expected, "you won't need to pull that money out of your account, and that means you won't need to pay taxes on those withdrawals just yet," says Brennan. Meanwhile, the money left in your 401(k)'s and IRAs will grow--and compound--tax deferred for several more years.
You can delay tapping Social Security. By waiting until after your "normal" retirement age (which is 66 for most boomers and 67 for those born in 1960 or later), "you can boost your payments by as much as 50 percent" versus someone who taps his benefits early, says Chris Raham, senior actuarial adviser at Ernst & Young. Recently, the employee benefit consultant Hewitt Associates studied the retirement savings of workers at some of the nation's biggest corporations. By Hewitt's calculations, older boomers were on track to replace 79.8 percent of their working income through pensions, 401(k)'s, and Social Security. That's assuming they retire at 65. But by working just two more years, they'd be on track to replace nearly 93 percent, in part thanks to bigger Social Security checks.
Working longer shortens your retirement. Life is a zero-sum game. Extend your working career, and you automatically shorten the length of your retirement. And "the less time you're going to be pulling money out, the less money you'll need," says Rande Spiegelman, vice president of financial planning at the Schwab Center for Investment Research.
You can reduce your withdrawal rate in retirement. The biggest reason retirees run out of money, studies show, is that they overestimate how much they can safely withdraw each year. Based on historic investment returns, typical retirees should withdraw no more than 4 to 5 percent annually, if they want their money to last for more than 25 years.
The problem is, to generate even $40,000 a year in retirement income, you'll need to have $1 million saved up. But if you were to earn, say, $20,000 a year, you'd need to pull only $20,000 from retirement accounts to produce that $40,000 in total income. So, you could manage with savings of $500,000.
You can maintain your healthcare coverage. A main reason that General Motors employee Larry Crager turned down a $140,000 buyout package is that the offer would have cut off retiree medical coverage. "My wife is self-employed--she owns a small flower shop--and she relies on my healthcare coverage," says Crager, 49, of Shelby Township, Mich. "It's a huge issue for us." Crager figures it may cost his family well over $140,000 to pay for healthcare coverage for the rest of their lives. He's probably right. Fidelity Investments recently reported that a 65-year-old couple retiring today would need some $200,000 in extra savings to cover basic medical costs.
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