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Keep Working for a Better Retirement

Years ago, a financial planner explains the financial benefits of continuing to work part-time after retirement through the following example:

Assume that you have $1 million in retirement savings, need $10,000 a month to maintain your standard of living, get $2,000 a month in Social Security and can expect an average rate of return of 6% on your investments (perhaps a bit optimistic these days).  If you don’t earn another cent, your money will last 16 years.  So, if you retire at age 65, your money will run out at age 81, and this is assuming a pretty good rate of return and no need to spend more as inflation bites into your purchasing power.

Given our longer lives and lower interest rates these days, it can make sense to keep working at least somewhat after retirement, not to mention the psychological benefits of continued work.

Fortunately, a bit of work can make a big difference financially.  Here are a few examples:

If you earn just $1,000 a month for three years after your age-65 retirement, your money will last one more year, to age 82.  Not such a big difference, but in effect you will receive $96,000 (at $8,000 a month) for earning $36,000.

However, if you earn $3,000 a month for three years, your savings will last an additional five years, to age 86 — $480,000 of extra funds ($96,000 x 5) for earning $118,000 ($36,000 x 3).  That’s a pretty good return.

And if you were to earn $5,000 a month for 10 years, your savings would last an extra 23 years, to age 104, which should be long enough for just about everyone.  That would amount to extra spending of $2.7 million achieved by earning an additional $600,000.

Don’t keep working if it makes you miserable, but if you enjoy it and it helps you stay involved in the outside world, by all means keep working at least part-time past retirement.

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