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Lane Keeter, CPA

Partner: Tax Consulting, Estate Planning, and Heber Springs Managing Partner

A Strategy to Combat Insufficient Retirement Savings

It's a fact - Baby Boomers, like myself, are retiring or facing retirement in huge numbers. Retirement is also staring Gen X'ers squarely in the face, especially those born in the 1960s.

It is also a fact that time has a way of getting rapidly away from us, and one day we wake up, having had the best of intentions for years to save for this approaching day, only to find that we have put it off and put it off, and now may have insufficient retirement savings.

The question then becomes: what, if anything, can we do to shore up our financial retirement safety net?

Of course, most people would say at this point, hey, you just need to start saving more as soon as possible! And while you are at it, how about investing in such a way that you have the opportunity to increase your rate of return a point or two?

All well and good, and hopefully you can to that, but is that enough? Or is there more you can do?

Awhile back, I ran across a reference to a paper on the subject that piqued my curiosity, so I found and read it. It is called "The Power of Working Longer", published a year ago in October 2017 by researchers Gila Bronshtein, Jason Scott, John Shoven, and Sita N. Slavov.

Let me say first of all that unless you are into complex equations and statistical data, this will not be good bedtime reading material for you. It does, however, make come to some interesting conclusions based on the data studied.

In short (and this may not be good news to many), the report states, "Our primary conclusion is that working longer is relatively powerful compared to saving more for most people."

Yes, you read that right, working longer is far and away the best step you can take to increase financial security at ultimate retirement, according to the research. (sigh)

The study concluded that Baby Boomers and older Gen X'ers will find that working longer, even if for just a few months, has a much greater effect on the income you can expect during retirement than does saving or even achieving a higher rate of return on your savings and investments. Combine all those things together, though, and you may really be able to make up lost ground!

So why is this?

To quote the researchers, "We show that postponing retirement impacts the sustainable standard of living in retirement for several reasons: (1) commencing Social Security at a later age results in higher monthly benefits, (2) working longer involves additional contributions to retirement accounts, (3) delayed withdrawals from retirement accounts results in additional compounding of previous account balances, and (4) delayed annuity purchase results in lower annuity prices (that is, a given amount of wealth will convert to a larger monthly annuity payment)."

Good points all! Case in point, as I have said in this column many times, delaying to take social security benefits until age 70 results in an 8% increase PER YEAR in the benefit you would otherwise receive. Working longer might just help you get there.

Now, I realize that not everyone has control over when they will retire and many, unfortunately, may not be capable of working longer in their older years. But for those who can, it has a powerful effect on the standard of living they will enjoy later in life.

As the report states so effectively, "Roughly speaking, deferring retirement by one year allows for an 8 percent higher standard of living for a couple and the subsequent survivor. The effect compounds for two, three, and four-year work extensions."

Those kinds of results make it something to strongly consider in your planning. And if you find yourself unable to continue to work the number of hours or at the current pace you do now, even continuing to work a smaller number of hours can have a dramatic effect, especially if you are able to earn enough to cover current living expenses, and allow your Social Security and other retirement savings and investments continue to grow until you fully retire.

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