There are many benefits to postponing retirement, including more retirement income and savings, and maintaining purpose and human contact in your life. It can also reduce the need to save, and thus the need to earn as much money. This can limit financial stress and open up opportunities for more meaningful work or to work less and spend more time doing whatever you choose, whether that’s recreation, travel, or time with grandchildren.
While there are persuasive statistics that most baby boomers have not saved enough for retirement, many are dutifully putting aside sufficient funds to meet their needs, sacrificing current consumption or working harder to earn enough money to meet their savings goals.
Those goals are quite high for most people given current longevity. Any healthy person retiring at age 65 can easily live another 25 years. The odds of at least one member of a couple living to 95 are even higher. It takes a lot of savings to finance three decades of leisure.
How Much Money Do You Need?
A couple requiring $100,000 of annual income should have $2.1 million socked away in savings in order to generate this amount, according to the Charles Schwab retirement calculator. That’s a lot of money.
Let’s also assume that they already have $1 million saved up and can continue to save $1,000 a month. According to Charles Schwab, they’re about $500,000 short of where they would need to be to retire in a year, but could meet their target if they delayed retirement until age 70.
But what if they planned to retire at 80? Then according to the Charles Schwab calculator, they’d actually be overfunded by about $300,000 by the time they reached retirement age. What does this mean? It means that they could save less over the next 15 years, working less, having more free time and less stress during their pre-retirement lives.
What if, instead, this fictional couple just had $500,000 in savings at age 65? Then, at age 70, they’d still be $650,000 short of what they would need to retire, but could afford to retire completely at age 77. They would still have excess cash if they worked to age 80.
With More Years, So Many Ways to Get There
The Charles Schwab calculator has its limitations, but it demonstrates that by working longer, you don’t have to work as hard. You can take lower-paying, more fulfilling work, or work part-time, or for part of the year, taking time off to travel or be with grandchildren. Retirement should not longer be considered all and then nothing in terms of work. And since that’s the case, you don’t need to have everything saved up to support you for the rest of your life when you leave your current employment.
But Beware Illness
That said, all of this depends on your being able to work beyond the normal retirement age (whatever that may be), which depends on your physical and cognitive health, both of which are not entirely predictable. So, if possible, build in a cushion. (I’d argue that the Charles Schwab calculator actually does have a cushion in place because it seems to anticipate saving enough to generate the necessary annual income without digging into principal, which is great if you want to pass something on to your children and grandchildren. But if you’re just saving for your own needs, you may not need quite as much as they calculate.)