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How 4 Years of Work Might Make or Break Retirement


Alicia Munnell, the director of the Center for Retirement Research at Boston College, is a weekly contributor to “Encore.”

Today, the average retirement age* for men is 64 and for women, it’s 62. But if people continue to retire this early, they are going to face a severe decline in their living standards.

The reasons for this decline are twofold.  First, retirement needs are increasing – people are living longer and facing rapidly rising health care costs and the prospect of uninsured long-term care costs.  Second, the retirement system is contracting – Social Security will replace less of pre-retirement income even under current law, retirees will be increasingly dependent on 401(k)s with modest balances, and people have seen a sharp drop in the value of their homes.

What’s more, exhorting people to save more on their own simply won’t work.  People save through institutionalized savings mechanisms such as employer-sponsored plans or paying off their mortgage; they accumulate very little outside their pensions or their house.

For most people, the most potent antidote to reductions in retirement income and rising health care costs is to work longer.  Each additional year in the workforce increases income directly through earnings from work and investments.  It also increases monthly Social Security benefits.  The age at which full Social Security benefits are paid is currently 66 and will reach 67 in 2022. Actuarially reduced benefits can be claimed at 62 and, after the Full Retirement Age, are actuarially increased until age 70.  As a result of the actuarial increases, monthly Social Security benefits at age 70 are 76 percent higher than benefits at age 62 (see Figure).  (To see this in action, use our SmartMoney Retirement Planner and adjust your Social Security start age in “Future Income” to be later than you retirement age.) Plus, a delay in tapping 401(k) plans allows balances to increase commensurately.

The response to the proposal to work longer is often “I don’t want to work until I’m 90!”   In fact, future retirees need not panic.  A few additional years of work can make retirees in 2030 as well off as those of the current generation.  Clearly, only two additional years of work are needed to compensate for the increase in the Full Retirement Age from 65 to 67.  And an additional two years will compensate for rising Medicare premiums, increased taxation of Social Security benefits, and other factors contributing to the deteriorating outlook.  An additional four years dramatically changes the arithmetic.  Instead of roughly two years of work for each year in retirement, adding four years to worklife and subtracting four years from retirement changes that ratio to three to one.

Working longer is a feasible option for the bulk of the population.  People are not only living longer but are increasingly healthy.  In addition, jobs are much less physically demanding than they were in the past.  And the gap between the educational attainment of the old and the young has disappeared.  But right now, of course, the prescription to work longer must be tempered by the fact that 9 percent of the labor force is unemployed.  And, a significant portion – maybe 25 percent of older Americans – will find continued employment either impossible or very difficult due to health problems or antiquated skills.  Still, for most of today’s workers, the best thing they can do to ensure a secure retirement is to make plans to work four years longer than they had originally planned.

*The average retirement age is defined here is the age at which more than half of individuals are no longer participating in the laborforce.


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    • I’m retired and am sure that If your work is no too physical and your employer is willing to pay more for your service than hiring a younger employee than work longer, I would have but my company was dumping it’s older personnel at age 55 there was no work available. Working 4 years more .. no problem if your allowed to.

    • Very well executed article..

    • This post couldnt be more precise.

    • You’re totally correct with this writing

    • If they really want older people to work another four years, they are going to have to do something about age discrimination. I know many older workers (55+ years) who were laid off from their jobs and cannot find similar work at the same or even within 70% of their previous salary. I have no problem with increasing the age for full retirement and medicare, but if that is done then we need some serious teeth in the age discrimination laws. Otherwise, we will end up with a lot of older people who have to drain their savings just to survive until “retirement’ age.

About Encore

  • Encore examines the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities and priorities of today’s retirees. The blog also explores news that affects retirement, from the Wall Street Journal Digital Network and around the web. Lead bloggers are reporter Catey Hill and senior editor Jeremy Olshan. Other contributors include The Wall Street Journal’s retirement columnists Glenn Ruffenach and Anne Tergesen; the Director for the Center for Retirement Research at Boston College, Alicia Munnell; and the Director of Research for Pinnacle Advisory Group, Michael Kitces, CFP.