The Remarkable Financial Benefits of Delaying Retirement

[damyst]

Bloomberg article

You're 49 years old, you make $113,000 a year and you're starting to get worried about financing your retirement. You could take the drastic step of upping your retirement savings by 10 percent of your salary. Or you could achieve the same result by retiring two years and five months later than you had been planning to.

... which is not a "drastic step" at all! Not one bit.

Using the CNNMoney annuity calculator, I find that a male New Yorker with $500,000 can buy a $2,505 monthly income with that at 62, $2,705 at age 65, $3,100 at age 70, and $3,707 at age 75. In other words, it pays to delay.

Not mentioned: how much better off the same New Yorker would be if they steered well clear of the predatory annuity market.

Shoven is a Stanford economics professor and longtime retirement guru who, at age 70, is practicing what he preaches.

So the "retirement guru" advocates postponing retirement for as long as possible?
I can't even.

[dragoncar]

If I simply delayed my retirement by five years, I could have increased my retirement time from 100 years to 50000 years!

[SnackDog]

The farther you get into your career the bigger the handcuffs get as the total compensation curve bends upward (pension, bonus, stock grants, health insurance).  Each extra year is worth exponentially more in addition to delaying retirement and onset of draw-down.

[marty998]

You're 49 years old, you make $113,000 a year and you're starting to get worried about financing your retirement. You could take the drastic step of upping your retirement savings by 10 percent of your salary. Or you could achieve the same result by retiring two years and five months later than you had been planning to.

If I have this right, you can either save $11,300 x 16(?) = $181,000 over the next 16 years to normal 65 retirement age, or down the track you can earn $275k in 2 years and 5 months to make up for the lost compounding (and you gotta pay tax on that, so it's longer than 2 and a half years).

Seems way simpler to cut your budget by 10% and you get back those 2 years of life when they fast start to slip away.

[carolinap]

Wow, I'm mystified by this totally new concept of saving for a longer time for more money. I should totally trade my finite time on planet earth for that.

[Laura33]

"You're 49 years old, you make $113,000 a year and you're starting to get worried about financing your retirement."

If you make 6 figures and don't even start to think about retirement until you're almost 50, you've played the game wrong.  At that point, you really don't have many alternatives beyond working longer or dramatically changing your lifestyle -- which, of course, is precisely why the article leads with this, because it sets up the premise perfectly.  Because the alternative is clearly unthinkable.*

If you make $21,996 a year, delaying retirement by just two and a half months has the same effect as saving 1 percent of earnings for 30 years

Or:  if you save 1% more for 30 years, you can retire 2.5 months earlier -- it's amazing the difference just a little bit of savings makes!

I find that a male New Yorker with $500,000 can buy a $2,505 monthly income with that at 62, $2,705 at age 65, $3,100 at age 70, and $3,707 at age 75. In other words, it pays to delay.

So let me get this straight.  Internet says life expectancy of a 70-yr-old white male is 14 years.  Which is better:  working for more than 1/3 of your remaining lifespan for an extra $600/month; or figuring out a way to live on $3100 + SS** a month and having those five years all to yourself to do whatever the hell you want with them, while you're still mobile and healthy enough to travel and do all the things you told yourself you'd do when you retired?***


*Please insert irony font here.

** The maximum SS benefit for someone retiring at 70 in 2018 is around $3600/mo, which puts the annuity + SS figure around $6700/mo, or $80K/yr.  Yeah, gee, it's hard to believe anyone could sqeak by on such a pittance.

***Or, of course, saving more than $500K well before the age of 70, so that at that age you have already been enjoying your freedom for a couple of decades and aren't stuck between two bad decisions.  But we have already established that we are in the world of limited and stupid options, so I'll go with the theme.

[Just Joe]

I suppose moving from a HCOL area to a LCOL area is out of the question too...

[boarder42]

5 years doubles what i can with draw annually. - if i like my job still i may keep working longer and just give more away to people who need it- i dont really dislike my job now.  I just want to get to the FI milestone then decide how i want to change it up- primarily i'd like to financially educate people and feel that i should quit my day job to show them what can be done.  But i'm looking at 37 vs 42 sooo. thats not as big a deal as 55 vs 60 as far as death is concerned.

[bacchi]

5 years doubles what i can with draw annually. - if i like my job still i may keep working longer and just give more away to people who need it- i dont really dislike my job now.  I just want to get to the FI milestone then decide how i want to change it up- primarily i'd like to financially educate people and feel that i should quit my day job to show them what can be done.  But i'm looking at 37 vs 42 sooo. thats not as big a deal as 55 vs 60 as far as death is concerned.

5 years is 5 years but, with shrinking time (and health) as you age, I see what you mean.

I actually enjoyed work. I just didn't enjoy the job that came along with it.

[boarder42]

5 years doubles what i can with draw annually. - if i like my job still i may keep working longer and just give more away to people who need it- i dont really dislike my job now.  I just want to get to the FI milestone then decide how i want to change it up- primarily i'd like to financially educate people and feel that i should quit my day job to show them what can be done.  But i'm looking at 37 vs 42 sooo. thats not as big a deal as 55 vs 60 as far as death is concerned.

5 years is 5 years but, with shrinking time (and health) as you age, I see what you mean.

I actually enjoyed work. I just didn't enjoy the job that came along with it.

thats my issue i hate the structure of a work place and sitting in a cube all day.  I think when i reach FI even before i'm going ot start leveraging the stache for more flexibility - i'm planning to use baby 1 as an excuse to drop to 4-8s and see how long i can ride that before they get mad at me - (its very frowned on here if you do this for more than 6 months or so).  then at baby 2 assuming baby 1 didnt kill my career working 4-8s i want to go to 3-8s - i'm working to get some systems in place so that the less i work the more value i'm actually providing to the company in some aspects. 

[Travis]

Shoven is a Stanford economics professor and longtime retirement guru who, at age 70, is practicing what he preaches.

So the "retirement guru" advocates postponing retirement for as long as possible?
I can't even.

The retirement guru who isn't retired? Makes perfect sense.

[Maenad]

Lately these types of articles really grind my gears. My mom, aged 75, was just diagnosed with dementia. We saw the signs begin as early as 5 years ago. "Good" life can be a hell of a lot shorter than people think.

I'm forecasting RE in 2 years, and you bet your sweet bippy I'll be out of here the second we reach our magic number. We'll also be discussing how much more we can cut expenses and therefore lower that number, but right now I'm feeling a bit like chicken-little, so I'm trying to calm down first.

Life is so short.

[TheGrimSqueaker]

So I see why an extra 5 years of compounding interest is good, but why does it have to be 5 of the years at the end instead of starting 5 years earlier and saving heavily? Astoundingly, that isn't mentioned as an option.

[Sibley]

Lately these types of articles really grind my gears. My mom, aged 75, was just diagnosed with dementia. We saw the signs begin as early as 5 years ago. "Good" life can be a hell of a lot shorter than people think.

I'm forecasting RE in 2 years, and you bet your sweet bippy I'll be out of here the second we reach our magic number. We'll also be discussing how much more we can cut expenses and therefore lower that number, but right now I'm feeling a bit like chicken-little, so I'm trying to calm down first.

Life is so short.

Maenad, I'm sorry about your mom's diagnosis. My dad has dementia as well. Make sure that you find yourself a support group, therapy, something to take care of yourself. If nothing else, talking with other people who've gone through it can give you ideas on how to cope with the latest behavior.

[DS]

If you work right up until your head hits the keyboard, your financials will be remarkable!!

[fredbear]

So I see why an extra 5 years of compounding interest is good, but why does it have to be 5 of the years at the end instead of starting 5 years earlier and saving heavily? Astoundingly, that isn't mentioned as an option.

In The Wealthy Barber the author postulates 2 brothers; for nostalgia and convenience I will call them A the Provident and B the Profligate, though the adjectives are slightly misleading in that they could be reversed at the nickpoint:

A saves from 20 - 27, making standard IRA contributions and investing, then ceases to save.  He earns market rate while saving and onward.
B the profligate saves nothing until the light goes on, and he starts saving and investing at 27 at the same rate as his brother did and continues earning market rate, until: 

They have aged, and decide to have dinner and compare nest-eggs, at 65.  According to the book - I am too lazy to activate the family spreadsheet and check - each has the same amount.  GS, you are right; the earliest 5 years are the critical ones; that option missing from the article is ours (ie, the Mustachians').

I started my daughter investing at 12, the boys at about 15 and 17.  They are fine.  The eldest reached his first million before 40.  The middle's net worth is increasing each month at an amount greater than his gross salary.  Her savings rate is about 700/month, but she's on track to continue it, and all three of them will likely comply with at least one of the rules: by age 50 you have to have paid off at least one house that you would be willing to live in.

[SwordGuy]

So I see why an extra 5 years of compounding interest is good, but why does it have to be 5 of the years at the end instead of starting 5 years earlier and saving heavily? Astoundingly, that isn't mentioned as an option.

I'm seeing more and more personal finance articles extolling how normal and proper and expected it is that people should work to age 70.  Some of them blatantly say that.  Others have that message as the subtext they want you to subliminally pick up and accept.

It's time to follow Cicero's advice and ask, "cui bono fuisset" ("To whose benefit?")

Who benefits from people following this advice?

[Travis]

So I see why an extra 5 years of compounding interest is good, but why does it have to be 5 of the years at the end instead of starting 5 years earlier and saving heavily? Astoundingly, that isn't mentioned as an option.

I'm seeing more and more personal finance articles extolling how normal and proper and expected it is that people should work to age 70.  Some of them blatantly say that.  Others have that message as the subtext they want you to subliminally pick up and accept.

It's time to follow Cicero's advice and ask, "cui bono fuisset" ("To whose benefit?")

Who benefits from people following this advice?

Whomever is actively managing their retirement account and whomever is reaping the benefits of their disposable income I'm sure.

[gooki]

Plenty of governments around the world are looking to shift retirement age to 70 to reduce expenses.

Gotta start that propaganda early.

[Just Joe]

Telling people to work to 70 perhaps makes them feel like its okay to have an underfunded retirement b/c look - everyone has the same problem. In other words, the author is sweetening the message a little.

To the better informed of course, working to 70 is not appealing at all and thus certain planning and savings has happened to avoid that outcome.

[sol]

There is only one definite benefit to postponing retirement by five years: you will have five fewer years of retired life.  Everything else is a maybe.

[cats]

My father retired at 65 (4 years ago now).  He and my mom had all sorts of travel plans, including international travel to places like Antarctica.  My dad was in really pretty excellent health and while my mom tends (I think) to be a bit of a hypochondriac, she was frankly in good health also.

Well, within a couple of years, they were both experiencing some health problems.  Nothing like dementia or cancer, but enough that any kind of overnight travel is now a major undertaking.  They are still quite independent and have very active lives so don't feel too bad for them...but their retirement is definitely not shaping up as planned.  They were basically expecting to have 10 or so years with no change in their ability to get out and do stuff and instead they only got 2 years of that.  I think also that they would both have a hard time holding down full-time jobs, or even very regular part-time jobs.

While their situation is hardly tragic, it certainly confirms for me that I don't want to have to work at 60, 65, or 70.  If my dad had planned to retired at 70 he'd probably currently be slogging out the last year at a job that his health problems would have made increasingly challenging, and I suspect the stress of it would have caused a few more health problems to pop up, shortening his life expectancy. 

Working until age 70 should be a backup plan...like plan D or E.  Not your plan A or even B.

[Racer X]

You're 49 years old, you make $113,000 a year...

Whoa whoa whoa!  I'm still working at 49?  That's not right.

[fredbear]

...

To the better informed of course, working to 70 is not appealing at all and thus certain planning and savings has happened to avoid that outcome.

I spent a certain amount of time in and around construction.  And I get outraged when I see some academic spin around in his chair, book-lined wall his backdrop, and learnedly inform the camera that all conceivable problems with social security would be fixed in perpetuity if "we" just raise the retirement age to 70.  "You get on your knees and you lay carpet for 30 years and see how you feel about some asshole telling you to do another 20."  "You get out of that chair, asshole, and pick up double-sheets of drywall and carry it around all day, and try wedging it up to the ceiling for the next 50 years."  "You run a jackhammer and a tamper for an extra 8 years with no hearing protection getting stone-deaf and breaking your kidneys loose from their mountings because if you bitch about OSHA to the supervisor your job is history and the boss'll call around the other construction supervisors in the area and your employability will be done."  Joe, I'm not calling you out, but a lot of the guys I worked with were not the planning/saving types.  Even when employment was hot and they didn't have to face annual layoffs.  They bought a lot of shit - big trucks and meth and a house they couldn't afford and got a spouse that wasn't much help if not directly a saboteur - and they sure never listened at least to me about saving and investing and all that, but we ask them to wreck their bodies in jobs where a 401(k) was a "Huh?" All they will have is social security and making them wait another 4 or 5 years while doing work that pains a 20-year-old seems cruel.

[Dicey]

So I see why an extra 5 years of compounding interest is good, but why does it have to be 5 of the years at the end instead of starting 5 years earlier and saving heavily? Astoundingly, that isn't mentioned as an option.

In The Wealthy Barber the author postulates 2 brothers; for nostalgia and convenience I will call them A the Provident and B the Profligate, though the adjectives are slightly misleading in that they could be reversed at the nickpoint:

A saves from 20 - 27, making standard IRA contributions and investing, then ceases to save.  He earns market rate while saving and onward.
B the profligate saves nothing until the light goes on, and he starts saving and investing at 27 at the same rate as his brother did and continues earning market rate, until: 

They have aged, and decide to have dinner and compare nest-eggs, at 65.  According to the book - I am too lazy to activate the family spreadsheet and check - each has the same amount.  GS, you are right; the earliest 5 years are the critical ones; that option missing from the article is ours (ie, the Mustachians').

I started my daughter investing at 12, the boys at about 15 and 17.  They are fine.  The eldest reached his first million before 40.  The middle's net worth is increasing each month at an amount greater than his gross salary.  Her savings rate is about 700/month, but she's on track to continue it, and all three of them will likely comply with at least one of the rules: by age 50 you have to have paid off at least one house that you would be willing to live in.

I read that book so long ago I can't remember when I read it. I'm pretty sure the late starter has to earn and save way more actual dollars and can still never catch up. That's why I doggedly hound people to understand the math before choosing to prepay/pay off their mortgage early. I have no issue with people who do, as long as they avail themselves of every other investment vehicle first, which, sadly most tend not to do. They just dream of how much they can "save" and how little they can live on once they have no mortgage. And then precious years are lost.

[Just Joe]

...

To the better informed of course, working to 70 is not appealing at all and thus certain planning and savings has happened to avoid that outcome.

I spent a certain amount of time in and around construction.  And I get outraged when I see some academic spin around in his chair, book-lined wall his backdrop, and learnedly inform the camera that all conceivable problems with social security would be fixed in perpetuity if "we" just raise the retirement age to 70.  "You get on your knees and you lay carpet for 30 years and see how you feel about some asshole telling you to do another 20."  "You get out of that chair, asshole, and pick up double-sheets of drywall and carry it around all day, and try wedging it up to the ceiling for the next 50 years."  "You run a jackhammer and a tamper for an extra 8 years with no hearing protection getting stone-deaf and breaking your kidneys loose from their mountings because if you bitch about OSHA to the supervisor your job is history and the boss'll call around the other construction supervisors in the area and your employability will be done."  Joe, I'm not calling you out, but a lot of the guys I worked with were not the planning/saving types.  Even when employment was hot and they didn't have to face annual layoffs.  They bought a lot of shit - big trucks and meth and a house they couldn't afford and got a spouse that wasn't much help if not directly a saboteur - and they sure never listened at least to me about saving and investing and all that, but we ask them to wreck their bodies in jobs where a 401(k) was a "Huh?" All they will have is social security and making them wait another 4 or 5 years while doing work that pains a 20-year-old seems cruel.

I agree. I don't like the idea of working to 70-75 yrs old either.

Right now I'm watching a situation unfold from afar. I know a guy that worked into his mid-70s b/c he said he liked to work. Instead I think he just didn't save enough when he was young for the way he wanted to retire. He's still a spendy type. The guy got a solid 18 months of retirement and his health has declined dramatically due to age and sickness. I don't know if he'll ever get back the kind of quality of life that he had before retirement. On one hand he had a great life, on the other it would be nice to have health and the freedom of retirement for a while.

I have absolutely no idea how to manage this retirement problem for the rest of the country. We have by my measure a dysfunctional government who would given the chance do away with more "entitlements" (their word, not mine) if they could. People don't want to take responsibility for themselves and build a nestegg - or they are low-income and can't.

For some people they can't get ahead b/c of circumstances beyond their control, others won't try learn/plan/work hard/save/delay gratification/live cheap/cook and eat food staples. I'm surrounded by examples of this group. I can't imagine what life will be like for them at 70 yrs old b/c they may still be working whatever jobs exist then for old folks. Occasionally I try to make suggestions about reading/learning/planning a little but like most MMM'ers experiences here - these kinds of people aren't interested. "Did you see what xyz said/did/bought on Facebook?" is more important.

Yeah you know all these things and I want you to know I know this too. Not picking at anyone here either.

[MgoSam]

So I see why an extra 5 years of compounding interest is good, but why does it have to be 5 of the years at the end instead of starting 5 years earlier and saving heavily? Astoundingly, that isn't mentioned as an option.

In The Wealthy Barber the author postulates 2 brothers; for nostalgia and convenience I will call them A the Provident and B the Profligate, though the adjectives are slightly misleading in that they could be reversed at the nickpoint:

A saves from 20 - 27, making standard IRA contributions and investing, then ceases to save.  He earns market rate while saving and onward.
B the profligate saves nothing until the light goes on, and he starts saving and investing at 27 at the same rate as his brother did and continues earning market rate, until: 

They have aged, and decide to have dinner and compare nest-eggs, at 65.  According to the book - I am too lazy to activate the family spreadsheet and check - each has the same amount.  GS, you are right; the earliest 5 years are the critical ones; that option missing from the article is ours (ie, the Mustachians').

I started my daughter investing at 12, the boys at about 15 and 17.  They are fine.  The eldest reached his first million before 40.  The middle's net worth is increasing each month at an amount greater than his gross salary.  Her savings rate is about 700/month, but she's on track to continue it, and all three of them will likely comply with at least one of the rules: by age 50 you have to have paid off at least one house that you would be willing to live in.

I read that book so long ago I can't remember when I read it. I'm pretty sure the late starter has to earn and save way more actual dollars and can still never catch up. That's why I doggedly hound people to understand the math before choosing to prepay/pay off their mortgage early. I have no issue with people who do, as long as they avail themselves of every other investment vehicle first, which, sadly most tend not to do. They just dream of how much they can "save" and how little they can live on once they have no mortgage. And then precious years are lost.

Yeah I kinda wanted to pay cash for my house so that I wouldn't have a mortgage over my head but then I realized that I would be better off keeping that money in the market. I can always pay off my mortgage later.

Ever have those friends that would just say things in a tone that implied that the discussion was over. I had one of those friends and she mentioned saving until she could buy a house with cash which I admired, it was her statement that it was stupid to get a mortgage that got on my nerves. Her argument, "My sister ran the numbers and you come out thousands ahead." I toyed with showing her a spreadsheet and explaining the opportunity cost but then I decided to do something productive with my time instead.

[Dicey]

Ever have those friends that would just say things in a tone that implied that the discussion was over. I had one of those friends and she mentioned saving until she could buy a house with cash which I admired, it was her statement that it was stupid to get a mortgage that got on my nerves. Her argument, "My sister ran the numbers and you come out thousands ahead." I toyed with showing her a spreadsheet and explaining the opportunity cost but then I decided to do something productive with my time instead.

Good decision. This story reminds me of the adage re: teaching a pig to sing.

It's also why I completely admire @boarder42's dogged determination. Were it not for him, and the people like you who Understand, I'd have abandoned the sheet music for this song long ago.

[kanga1622]

I gotta say, I really do want to “grow up” to be the older people with their walkers working the checkout at Walmart.

Desk jobs have a completely different time availability than physical jobs. Even so, why would anyone want to be working because they need the income at 70? It is one thing if you are volunteering to fill time and keep busy but why would they advise anyone to plan to stay employed until that age?

[boarder42]

I gotta say, I really do want to “grow up” to be the older people with their walkers working the checkout at Walmart.

Desk jobs have a completely different time availability than physical jobs. Even so, why would anyone want to be working because they need the income at 70? It is one thing if you are volunteering to fill time and keep busy but why would they advise anyone to plan to stay employed until that age?

b/c the normal american lives a grossly wasteful life and with the way medicine has advanced we can keep people alive much longer - the avg person doesnt want to listen to spend less money on starbucks and learn how to make your spending more efficient - and you dont really need a giant SUV.  they want to hear its ok to have all that, just work a few extra years - thats something in the future they can be like yeah i'll just do that instead so i can have fleeting happiness right now.

in reality as indicated above it doesnt take much effort early in your life to set yourself up to be done easily in your 50s or likely your 40s.  if we went to just my wife's salary which covers our cost of living expenses today my wife and i could retire at 45 - we're not going to do that but we could if we wanted to - instead we'll likely just work til we're 35 or 36 .

[Cassie]

I worked for the state helping people with disabilities return to work and yes people in the skilled trades wear out their bodies early-some in their late 30's or early 40's.  Not everyone is able to retrain for a desk job.  The government does not want to pay people the SS they have earned but instead give more tax breaks to the rich.  Many people can't work until 70 cognitively or physically.  I am older and lost 3 friends to cancer between the ages of 59-67.  I am furious with all the tax breaks for the rich and yet now they talk about cutting SS, Medicare, etc. I am not furious for myself but for the people that depend on it in their old age.