Working Longer—The Best Way to Afford Retirement

For instance, someone with $100,000 in income and savings of $1 million, who retired at age 62 and took 4 percent a year from savings, would have combined income from savings and Social Security of $56,860 in the first year of retirement. If he kept working until age 65, assuming continued contributions to the retirement account and 7 percent compounded growth (well, maybe not this year), his first year’s retirement income would be $73,768. At age 67, it would be $87,344. Of course, most of us don’t earn that much and have that much in savings, but you get the idea: Working longer pays off.

Steven A. Sass, coauthor of Working Longer: The Solution to the Retirement Income Challenge, has done some estimates of how much longer people will have to work to recover from the market’s decline so far. It varies, of course, by how close to retirement you are and how dependent on retirement savings you expect to be.

As an example, he provides three scenarios for someone who is eight years away from retirement, has been saving 6 percent of salary with a 3 percent employer match and who expects retirement savings to supply half his retirement income: The worker could (1) retire in eight years as originally planned with income 11 percent lower than anticipated, (2) retire then but in the meantime increase savings to 21 percent of income, or (3) retire about a year and a half later and have the originally projected income. If people are healthy and can find employment, “working longer would appear to be the least onerous,” Sass says.

Sadly, not everyone who needs to will be able to work longer. In November, unemployment among those 65 and older was up by about 50 percent from December 2007.

“I’m grateful that I can work,” says Kostriken, “that I’m physically able and have a way of earning a living. If I were this age and not well, I could not do what I’m doing.” Even so, she worries that the national economic downturn, on top of earlier declines in the logging and fishing industries that were the mainstay of the area in which she lives, will have an impact on her practice.

But she remains hopeful. “I think it’s a cycle, and the cycle will revolve.”

Martha M. Hamilton was a reporter and editor at the Washington Post for 30 years. Her column, Your Financial Future, appears regularly on AARP Bulletin Today.