Planning to delay retirement may not rescue you from poor savings

Planning to work longer is a popular escape hatch for Americans who feel they’ve saved too little to support themselves in old age.

About 27% of workers intend to work in retirement because they need to supplement their income, according to a new CNBC and SurveyMonkey survey. They polled 6,657 U.S. adults in early August, including 2,603 who are retired and 4,054 who are working full time or part time, are self-employed or who own a business.

While working longer is among the best ways to shore up one’s nest egg, the plan may backfire, according to retirement experts.

Workers may not be able to work into their late 60s, early 70s or later due to an unexpected health complication or a layoff, for example.

“It sounds great on paper,” said Philip Chao, a certified financial planner and founder of Experiential Wealth, based in Cabin John, Maryland. “But reality could be very different.”

If workers lose those wages, they’d have to figure out another way to make their retirement savings last.

Research shows Americans often stop working earlier than they anticipate.

Since the early 2000s, there has been a consistent gap of about five years between retirees’ reported retirement age and workers’ expected retirement age, according to an annual Gallup poll.

For example, in 2023, the average non-retiree expected to retire at 66 years old, Gallup found. However, the average retiree actually retired at 62.

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The Employee Benefit Research Institute also finds a “large” share of retirees — 46% — leave the work force earlier than planned.

A third of workers said they expect to retire at 70 or older — or never, according to EBRI’s 2023 Retirement Confidence Survey. Just 6% of retirees actually did so.

Americans generally use a later retirement age “as an escape valve which doesn’t necessarily exist,” Chao said. “But saying it and doing it are two totally different things.”

It could ultimately be a “very dangerous” assumption, Chao said.

Many people who retired earlier than planned, 35%, did so because of a hardship, such as a health problem or disability, according to the EBRI survey. Another 31% of them retired due to “changes at their company,” such as a layoff.  

More than half, 56%, of full-time workers in their early 50s get pushed out of their jobs due to layoffs and other circumstances before they’re ready to retire, according to a 2018 Urban Institute paper. Often, such workers earn substantially less money if they ultimately find another job, the paper found.

Of course, some people exit the workforce early for positive reasons: More than a third, 35%, of people who retired earlier than anticipated did so because they could afford to, EBRI found.

Working longer — for those who can do it — is a financial boon, according to retirement experts.

For one, workers can delay drawing down their savings; that keeps their nest egg intact longer and may allow it to continue growing via investment profit and additional contributions. Workers can also delay claiming Social Security benefits, which can boost how much they receive.

Some people continue to work longer because they like it: About a quarter, 26%, of workers said they want to work in retirement, and 17% of retirees continue to work in some capacity because they enjoy it, according to the CNBC retirement survey.

Americans may also get non-financial benefits from working longer, such as improved health and longevity. However, research suggests such benefits depend on how much stress workers experience on the job, and the physical demands of their labor.

Working longer also appears to be more of a possibility for a growing share of older workers.

“A shift away from a manufacturing economy to one primarily focused on delivering services and information facilitates working to an older age,” Jeffrey Jones, a Gallup analyst, wrote.