The Power of Working Longer

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: The Power of Working Longer

Post by willthrill81 »

CnC wrote: Thu Jan 25, 2018 10:13 am I'm still really struggling with the fact noone has pointed out that basic math does not work in their favor.


6 months of extra work ≠ saving 1 % for 30 years. How am I the only one to poi t this out?
I showed that as well above. An extra 1% return for 30 years is far more effective than working an additional six months.
The Sensible Steward
CnC
Posts: 961
Joined: Thu May 11, 2017 12:41 pm

Re: The Power of Working Longer

Post by CnC »

willthrill81 wrote: Thu Jan 25, 2018 10:28 am
CnC wrote: Thu Jan 25, 2018 10:13 am I'm still really struggling with the fact noone has pointed out that basic math does not work in their favor.


6 months of extra work ≠ saving 1 % for 30 years. How am I the only one to poi t this out?
I showed that as well above. An extra 1% return for 30 years is far more effective than working an additional six months.

Ahh ok I must have glanced past it. I was just so.caught off guard by people arguing how much having that extra 1-5 years of freedom retirement buys rather than calling out the papers authors for flat out making stuff up.
Lars_2013
Posts: 217
Joined: Sun Dec 15, 2013 1:00 pm

Re: The Power of Working Longer

Post by Lars_2013 »

CnC wrote: Thu Jan 25, 2018 9:56 am This is just bad math. The people who created it should be ashamed that they would publish such blatant lies.


They claim 6months = 1% savings?

They are saying that retiring 5 years later will allow you to save 10% less of your salary per year. That is just fiction.


I can assure you that if you can retire at 62 saving 15% of your salary you can't retire as well at 67 saving only 5%.


Look at the math
Say you make 100k per year saving 15k a year at a yield of 5% for 30 years gives you right at 1 million

Now say you save 5k a year for 35 years. You have 450k.


How this passed anyone's sniff test astounds me.

Even at 0% the math doesn't work. 35 years at 5k =175k 30 years at 15k =450k.

How has noone pointed this out? What am I missing?
The study finds its results because they find/assume most retirement income is generated by social security and they assume the person annuitizes all of their savings/investments upon retirement. Therefore, they find large gains from delaying retirement because of the significantly increased values of social security and annuities when claimed/purchased at older ages. These large gains dwarf the benefit of increased savings rates in their study.

If one assumes a 4% (or 3.7% or whatever) withdrawal rate from investments rather than annuitizing, the results are very different.
CnC
Posts: 961
Joined: Thu May 11, 2017 12:41 pm

Re: The Power of Working Longer

Post by CnC »

Lars_2013 wrote: Thu Jan 25, 2018 10:54 am
CnC wrote: Thu Jan 25, 2018 9:56 am This is just bad math. The people who created it should be ashamed that they would publish such blatant lies.


They claim 6months = 1% savings?

They are saying that retiring 5 years later will allow you to save 10% less of your salary per year. That is just fiction.


I can assure you that if you can retire at 62 saving 15% of your salary you can't retire as well at 67 saving only 5%.


Look at the math
Say you make 100k per year saving 15k a year at a yield of 5% for 30 years gives you right at 1 million

Now say you save 5k a year for 35 years. You have 450k.


How this passed anyone's sniff test astounds me.

Even at 0% the math doesn't work. 35 years at 5k =175k 30 years at 15k =450k.

How has noone pointed this out? What am I missing?
The study finds its results because they find/assume most retirement income is generated by social security and they assume the person annuitizes all of their savings/investments upon retirement. Therefore, they find large gains from delaying retirement because of the significantly increased values of social security and annuities when claimed/purchased at older ages. These large gains dwarf the benefit of increased savings rates in their study.

If one assumes a 4% (or 3.7% or whatever) withdrawal rate from investments rather than annuitizing, the results are very different.
Ahh I suppose this is another one of those cases where figures can't lie but liers can figure.


So assuming you save so little that you are mainly relying on social security and then take an annuity that increases in value the closer to death you could reverse engineering the math to give you the information you want.

Still disturbing that a actual University would allow this published in their name because it spreads dangerous misinformation.
smitcat
Posts: 13227
Joined: Mon Nov 07, 2016 9:51 am

Re: The Power of Working Longer

Post by smitcat »

CnC wrote: Thu Jan 25, 2018 11:06 am
Lars_2013 wrote: Thu Jan 25, 2018 10:54 am
CnC wrote: Thu Jan 25, 2018 9:56 am This is just bad math. The people who created it should be ashamed that they would publish such blatant lies.


They claim 6months = 1% savings?

They are saying that retiring 5 years later will allow you to save 10% less of your salary per year. That is just fiction.


I can assure you that if you can retire at 62 saving 15% of your salary you can't retire as well at 67 saving only 5%.


Look at the math
Say you make 100k per year saving 15k a year at a yield of 5% for 30 years gives you right at 1 million

Now say you save 5k a year for 35 years. You have 450k.


How this passed anyone's sniff test astounds me.

Even at 0% the math doesn't work. 35 years at 5k =175k 30 years at 15k =450k.

How has noone pointed this out? What am I missing?
The study finds its results because they find/assume most retirement income is generated by social security and they assume the person annuitizes all of their savings/investments upon retirement. Therefore, they find large gains from delaying retirement because of the significantly increased values of social security and annuities when claimed/purchased at older ages. These large gains dwarf the benefit of increased savings rates in their study.

If one assumes a 4% (or 3.7% or whatever) withdrawal rate from investments rather than annuitizing, the results are very different.
Ahh I suppose this is another one of those cases where figures can't lie but liers can figure.


So assuming you save so little that you are mainly relying on social security and then take an annuity that increases in value the closer to death you could reverse engineering the math to give you the information you want.

Still disturbing that a actual University would allow this published in their name because it spreads dangerous misinformation.
"Still disturbing that a actual University would allow this published in their name because it spreads dangerous misinformation."

I do agree - but - as terrible as their information may seem it appears that it may apply well to a larger majority of the current population.
That actually scared me more than realizing that Lars_2013 observation was exactly correct.
CnC
Posts: 961
Joined: Thu May 11, 2017 12:41 pm

Re: The Power of Working Longer

Post by CnC »

smitcat wrote: Thu Jan 25, 2018 11:24 am

"Still disturbing that a actual University would allow this published in their name because it spreads dangerous misinformation."

I do agree - but - as terrible as their information may seem it appears that it may apply well to a larger majority of the current population.
That actually scared me more than realizing that Lars_2013 observation was exactly correct.

Agreed, I had a post locked on here just last week where I pointed out an article showing that pooling suggests only 31% of us housholds could afford a single suprise $1000 bill.

It makes me some time wonder just how much of a bubble we in boggelheads are living.

I'm planning on saving and retiring on a pension and 3-5m portfolio in 20ish years. If it happens or not no one knows. But what will happen to it when EVERYONE ELSE has a net worth of $0 at 65 and can never retire?

That worries me more than my investments going up or down.
User avatar
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: The Power of Working Longer

Post by willthrill81 »

CnC wrote: Thu Jan 25, 2018 11:33 amAgreed, I had a post locked on here just last week where I pointed out an article showing that pooling suggests only 31% of us housholds could afford a single suprise $1000 bill.

It makes me some time wonder just how much of a bubble we in boggelheads are living.

I'm planning on saving and retiring on a pension and 3-5m portfolio in 20ish years. If it happens or not no one knows. But what will happen to it when EVERYONE ELSE has a net worth of $0 at 65 and can never retire?

That worries me more than my investments going up or down.
When I recently told a group of college-age students that the median net worth of 65-69 year olds in the U.S. is about $190k, several of them literally gasped. One girl said that it made her want to cry. That actually makes me hopeful for younger people. No doubt many of them see the predicament that their parents and grandparents are in and want something better for themselves. I heard yesterday that 64% of Millennials report that they are saving, which isn't far behind Baby Boomers at 75%.
The Sensible Steward
CnC
Posts: 961
Joined: Thu May 11, 2017 12:41 pm

Re: The Power of Working Longer

Post by CnC »

willthrill81 wrote: Thu Jan 25, 2018 11:40 am
CnC wrote: Thu Jan 25, 2018 11:33 amAgreed, I had a post locked on here just last week where I pointed out an article showing that pooling suggests only 31% of us housholds could afford a single suprise $1000 bill.

It makes me some time wonder just how much of a bubble we in boggelheads are living.

I'm planning on saving and retiring on a pension and 3-5m portfolio in 20ish years. If it happens or not no one knows. But what will happen to it when EVERYONE ELSE has a net worth of $0 at 65 and can never retire?

That worries me more than my investments going up or down.
When I recently told a group of college-age students that the median net worth of 65-69 year olds in the U.S. is about $190k, several of them literally gasped. One girl said that it made her want to cry. That actually makes me hopeful for younger people. No doubt many of them see the predicament that their parents and grandparents are in and want something better for themselves. I heard yesterday that 64% of Millennials report that they are saving, which isn't far behind Baby Boomers at 75%.
I sincerely hope you are right but surveys like this do not inspire much confidence in my fellow millennials.

https://aperioncare.com/wp-content/uplo ... Test10.png

Apparently 34% of us think we can retire comfortably with less than 200k. And only 10% of us think that we would need more than 2m to COMFORTABLY retire.
herpfinance
Posts: 248
Joined: Tue Nov 18, 2014 3:52 pm
Location: Denmark

Re: The Power of Working Longer

Post by herpfinance »

CnC wrote: Thu Jan 25, 2018 11:53 am
willthrill81 wrote: Thu Jan 25, 2018 11:40 am
CnC wrote: Thu Jan 25, 2018 11:33 amAgreed, I had a post locked on here just last week where I pointed out an article showing that pooling suggests only 31% of us housholds could afford a single suprise $1000 bill.

It makes me some time wonder just how much of a bubble we in boggelheads are living.

I'm planning on saving and retiring on a pension and 3-5m portfolio in 20ish years. If it happens or not no one knows. But what will happen to it when EVERYONE ELSE has a net worth of $0 at 65 and can never retire?

That worries me more than my investments going up or down.
When I recently told a group of college-age students that the median net worth of 65-69 year olds in the U.S. is about $190k, several of them literally gasped. One girl said that it made her want to cry. That actually makes me hopeful for younger people. No doubt many of them see the predicament that their parents and grandparents are in and want something better for themselves. I heard yesterday that 64% of Millennials report that they are saving, which isn't far behind Baby Boomers at 75%.
I sincerely hope you are right but surveys like this do not inspire much confidence in my fellow millennials.

https://aperioncare.com/wp-content/uplo ... Test10.png

Apparently 34% of us think we can retire comfortably with less than 200k. And only 10% of us think that we would need more than 2m to COMFORTABLY retire.
Very informative survey. By bogleheads standards I often feel poor, but then you realize that you have actually saved more than 94% (98%?) of your corresponding generation.
"The intelligent investor is a realist who sells to optimists and buys from pessimists" - Benjamin Graham
protagonist
Posts: 9242
Joined: Sun Dec 26, 2010 11:47 am

Re: The Power of Working Longer

Post by protagonist »

herpfinance wrote: Thu Jan 25, 2018 1:22 pm
CnC wrote: Thu Jan 25, 2018 11:53 am
willthrill81 wrote: Thu Jan 25, 2018 11:40 am
CnC wrote: Thu Jan 25, 2018 11:33 amAgreed, I had a post locked on here just last week where I pointed out an article showing that pooling suggests only 31% of us housholds could afford a single suprise $1000 bill.

It makes me some time wonder just how much of a bubble we in boggelheads are living.

I'm planning on saving and retiring on a pension and 3-5m portfolio in 20ish years. If it happens or not no one knows. But what will happen to it when EVERYONE ELSE has a net worth of $0 at 65 and can never retire?

That worries me more than my investments going up or down.
When I recently told a group of college-age students that the median net worth of 65-69 year olds in the U.S. is about $190k, several of them literally gasped. One girl said that it made her want to cry. That actually makes me hopeful for younger people. No doubt many of them see the predicament that their parents and grandparents are in and want something better for themselves. I heard yesterday that 64% of Millennials report that they are saving, which isn't far behind Baby Boomers at 75%.
I sincerely hope you are right but surveys like this do not inspire much confidence in my fellow millennials.

https://aperioncare.com/wp-content/uplo ... Test10.png

Apparently 34% of us think we can retire comfortably with less than 200k. And only 10% of us think that we would need more than 2m to COMFORTABLY retire.
Very informative survey. By bogleheads standards I often feel poor, but then you realize that you have actually saved more than 94% (98%?) of your corresponding generation.
I think that is fairly realistic by today's standards, considering that most retirees have some form of income such as social security, investment income, pension, etc. It is stated above that the median net worth of 65-69 y o's is about 190K. It certainly does not seem to me that half of American retirees are struggling. In my MCOL community most seem relatively comfortable to me.

It would be interesting to know what "group of college age students" reacted so dramatically. If it was a group of students from a private school with tuition and fees ranging around $60K/year or more, that would hardly be a representative sample of millenials. I am actually surprised that a full 10% in the survey really think they need more than $2M to retire comfortably, since to the vast majority of Americans $2M is a pipe dream. I question whether the group sampled was representative of the general population or were also from elite schools.
User avatar
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: The Power of Working Longer

Post by willthrill81 »

protagonist wrote: Thu Jan 25, 2018 10:13 pmI think that is fairly realistic by today's standards, considering that most retirees have some form of income such as social security, investment income, pension, etc. It is stated above that the median net worth of 65-69 y o's is about 190K. It certainly does not seem to me that half of American retirees are struggling. In my MCOL community most seem relatively comfortable to me.
Here's the data source. https://dqydj.com/net-worth-by-age-calc ... ed-states/

It's actually improved a bit since last year when I looked at it the last time. The median net worth for 65-69 year olds is now $210k (including home equity), which isn't surprising given the performance of the stock market and the general economic condition. Still, that group and those were fewer assets are pretty much doomed to rely on a combination of (1) SS, (2) working as long as they physically can, and (3) relying on assistance from others.
protagonist wrote: Thu Jan 25, 2018 10:13 pmIt would be interesting to know what "group of college age students" reacted so dramatically. If it was a group of students from a private school with tuition and fees ranging around $60K/year or more, that would hardly be a representative sample of millenials. I am actually surprised that a full 10% in the survey really think they need more than $2M to retire comfortably, since to the vast majority of Americans $2M is a pipe dream. I question whether the group sampled was representative of the general population or were also from elite schools.
The students were all from a regional, relatively low cost, public university. My experience is that even at this age, most people seem to understand that $200k isn't enough for a 'typical' retirement, especially for those who are about to (hopefully) get a four-year degree.
The Sensible Steward
AlohaJoe
Posts: 6609
Joined: Mon Nov 26, 2007 1:00 pm
Location: Saigon, Vietnam

Re: The Power of Working Longer

Post by AlohaJoe »

willthrill81 wrote: Thu Jan 25, 2018 10:55 pm It's actually improved a bit since last year when I looked at it the last time. The median net worth for 65-69 year olds is now $210k (including home equity), which isn't surprising given the performance of the stock market and the general economic condition. Still, that group and those were fewer assets are pretty much doomed to rely on a combination of (1) SS, (2) working as long as they physically can, and (3) relying on assistance from others.
This seems unnecessarily alarmist, especially because you don't mention pensions at all. "Doomed to rely on Social Security"? Oh, the horror.....

There are really three distinct groups of people in that age range...I think looking at medians like that is misleading.

...48% of the group have any retirement savings at all. In this group, the median net worth is $597,000 and 58% of them have a pension on top of that. This 48% is totally safe.

...a further 26% don't have any retirement savings. But "retirement savings" isn't everything. This group has a pension. Between their pension and their Social Security they are also safe. (A pension only needs to provide about $21,000 a year on top of Social Security to meet median spending needs.)

So far we've accounted for three-quarters of retirees.

What's left are the people who are not in a good position. No retirement savings, no pension, A median net worth of just $57,000. 67% home ownership rate. Only 36% have paid off their house. It's not great news but it still isn't as dire as it looks at first glance because people in this group have (unfortunately) spent their entire lives with low income. They have median household income of just $19,000, meaning that Social Security provides a substantial amount of what they need. 45% of them rely on Social Security for 90% of their income.

The reality is that people who don't have retirement savings are less likely to work (25% have employment income versus 50% of those who have a pension and/or retirement savings). Likely because they've unfortunately spent their entire lives in the kinds of jobs that don't lend themselves to working when you are over 55.

In summary: 75% of people in that age group are basically totally fine. Of the remaining 25%, Social Security provides most of what their pre-retirement lifestyle requires. In general, they don't have any retirement savings because they never had income during their working lives.

25% of Americans being in a precarious and relatively barebones existence is not great, I will absolutely grant that. It is something that should be improved. But telling them to save more is unlikely to be the right solution, since they don't really have the income to save in the first place.

Overall the picture is pretty far from being dire.

The real question is what happens over the next 20-30 years as the generation that grew up without pension plans starts entering this age range. Right now pensions appear to "saving" around 25-50% of the population. The evidence so far on defined contribution savings plans isn't great. But between "empty nest catch up savings" and the power of compounding, it is probably still too early to say it is a foregone conclusion.
User avatar
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: The Power of Working Longer

Post by willthrill81 »

AlohaJoe wrote: Fri Jan 26, 2018 12:43 am
willthrill81 wrote: Thu Jan 25, 2018 10:55 pm It's actually improved a bit since last year when I looked at it the last time. The median net worth for 65-69 year olds is now $210k (including home equity), which isn't surprising given the performance of the stock market and the general economic condition. Still, that group and those were fewer assets are pretty much doomed to rely on a combination of (1) SS, (2) working as long as they physically can, and (3) relying on assistance from others.
This seems unnecessarily alarmist, especially because you don't mention pensions at all.
That's a very fair point, and I should have included pensions. But even if the number of would-be retirees who are in financial trouble is 'only' 25%, that's still millions of people.

And as you point out, pensions are disappearing for those still in the workforce (federal employees and military excluded, of course), so unless a large portion of that bottom 50% get to saving, there will be real trouble in the coming decades. There were an estimated 1.4 million boomerang parents way back in 2000, and that number has surely grown significantly in the last 18 years. Twenty percent of Millennials are already providing financial support to their parents.
The Sensible Steward
User avatar
El Greco
Posts: 515
Joined: Tue Aug 23, 2016 2:21 pm

Re: The Power of Working Longer

Post by El Greco »

The only power I see in working longer is all the energy it's going to deplete from me in retirement. Thanks, but no thanks. :beer
User avatar
Tycoon
Posts: 1625
Joined: Wed Mar 28, 2012 7:06 pm

Re: The Power of Working Longer

Post by Tycoon »

Silliness.
Emotionless, prognostication free investing. Ignoring the noise and economists since 1979. Getting rich off of "smart people's" behavioral mistakes.
smitcat
Posts: 13227
Joined: Mon Nov 07, 2016 9:51 am

Re: The Power of Working Longer

Post by smitcat »

I believe the amounts of money available to retired couples have always been lower than generally thought of on this site.
The numbers are lower for all sources of income in retirement than I would have thought....

Households Aged 55-64
$62,802 median
$89,986 mean
Households Aged 65-74:
$47,432
$68,905
Households Aged 75 and Older:
$30,635
$45,989


Where Does Most Retirement Income Come From?
According to the Pension Rights Center, older adults get retirement income from the following sources:

Social Security: 85 percent of people 65 and older get Social Security. The average Social Security income in 2017 will be $1,360, according to a fact sheet from the Social Security Administration.

Assets: Sixty-three percent of retirees rely on assets for retirement income. According to Retirement USA, “the median amount of asset income for households where either the householder or spouse was aged 65 or older was $1,542 for those households who received any asset income. In 2008 59 percent of older households had income from assets.”

Pensions: A mere 32 percent of today’s retirees have pensions and this number is trending further downward.

Earnings: 23 percent of older Americans have work income. According to the AARP, the median retirement income earned by retirees from work is $25,000 a year. Note, this is the highest amount of any income source.

Public Assistance or Veteran’s Benefits: About 7 percent of retirees are getting help from government source

Here is a link to the article....
https://www.newretirement.com/retiremen ... come-2017/
User avatar
LadyGeek
Site Admin
Posts: 95466
Joined: Sat Dec 20, 2008 4:34 pm
Location: Philadelphia
Contact:

Re: The Power of Working Longer

Post by LadyGeek »

You still need to have a baseline amount of money to be able to make this decision.

Here's how to get there: Importance of saving early

The authors' model is defined by differences to the life-cycle model. For those who may need a refresher, the wiki has some background info: Life-cycle finance
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
ncbill
Posts: 2049
Joined: Sun Jul 06, 2008 4:03 pm
Location: Western NC

Re: The Power of Working Longer

Post by ncbill »

willthrill81 wrote: Fri Jan 26, 2018 12:52 am
AlohaJoe wrote: Fri Jan 26, 2018 12:43 am
willthrill81 wrote: Thu Jan 25, 2018 10:55 pm It's actually improved a bit since last year when I looked at it the last time. The median net worth for 65-69-year-olds is now $210k (including home equity), which isn't surprising given the performance of the stock market and the general economic condition. Still, that group and those were fewer assets are pretty much doomed to rely on a combination of (1) SS, (2) working as long as they physically can, and (3) relying on assistance from others.
This seems unnecessarily alarmist, especially because you don't mention pensions at all.
That's a very fair point, and I should have included pensions. But even if the number of would-be retirees who are in financial trouble is 'only' 25%, that's still millions of people.

And as you point out, pensions are disappearing for those still in the workforce (federal employees and military excluded, of course), so unless a large portion of that bottom 50% get to saving, there will be real trouble in the coming decades. There was an estimated 1.4 million boomerang parents way back in 2000, and that number has surely grown significantly in the last 18 years. Twenty percent of Millennials are already providing financial support to their parents.
Having a pension can be a huge factor in the ability to retire comfortably.

I've had blue-collar relatives, with maybe 5 figures saved, who were able to retire 25+ years ago at around age 50.

All thanks to their COLA pension & generous retiree health-care coverage, who have since seen their investments grow to high-6 figures.

At least one of my kids will be serving several years in the military as payment for their undergraduate education & given what they want to do afterward I've recommended they stay the full 20 for the pension.
User avatar
Johnnie
Posts: 587
Joined: Sat May 28, 2016 3:18 pm
Location: Michigan

Re: The Power of Working Longer

Post by Johnnie »

Compare and contrast this Marketwatch article from Merriman:

Double your retirement income (by working another) five years
"I know nothing."
protagonist
Posts: 9242
Joined: Sun Dec 26, 2010 11:47 am

Re: The Power of Working Longer

Post by protagonist »

AlohaJoe wrote: Fri Jan 26, 2018 12:43 am
willthrill81 wrote: Thu Jan 25, 2018 10:55 pm It's actually improved a bit since last year when I looked at it the last time. The median net worth for 65-69 year olds is now $210k (including home equity), which isn't surprising given the performance of the stock market and the general economic condition. Still, that group and those were fewer assets are pretty much doomed to rely on a combination of (1) SS, (2) working as long as they physically can, and (3) relying on assistance from others.
This seems unnecessarily alarmist, especially because you don't mention pensions at all. "Doomed to rely on Social Security"? Oh, the horror.....

There are really three distinct groups of people in that age range...I think looking at medians like that is misleading.

...48% of the group have any retirement savings at all. In this group, the median net worth is $597,000 and 58% of them have a pension on top of that. This 48% is totally safe.

...a further 26% don't have any retirement savings. But "retirement savings" isn't everything. This group has a pension. Between their pension and their Social Security they are also safe. (A pension only needs to provide about $21,000 a year on top of Social Security to meet median spending needs.)

So far we've accounted for three-quarters of retirees.

What's left are the people who are not in a good position. No retirement savings, no pension, A median net worth of just $57,000. 67% home ownership rate. Only 36% have paid off their house. It's not great news but it still isn't as dire as it looks at first glance because people in this group have (unfortunately) spent their entire lives with low income. They have median household income of just $19,000, meaning that Social Security provides a substantial amount of what they need. 45% of them rely on Social Security for 90% of their income.

The reality is that people who don't have retirement savings are less likely to work (25% have employment income versus 50% of those who have a pension and/or retirement savings). Likely because they've unfortunately spent their entire lives in the kinds of jobs that don't lend themselves to working when you are over 55.

In summary: 75% of people in that age group are basically totally fine. Of the remaining 25%, Social Security provides most of what their pre-retirement lifestyle requires. In general, they don't have any retirement savings because they never had income during their working lives.

25% of Americans being in a precarious and relatively barebones existence is not great, I will absolutely grant that. It is something that should be improved. But telling them to save more is unlikely to be the right solution, since they don't really have the income to save in the first place.

Overall the picture is pretty far from being dire.

The real question is what happens over the next 20-30 years as the generation that grew up without pension plans starts entering this age range. Right now pensions appear to "saving" around 25-50% of the population. The evidence so far on defined contribution savings plans isn't great. But between "empty nest catch up savings" and the power of compounding, it is probably still too early to say it is a foregone conclusion.
Thank you for this analysis, Joe. I haven't checked your facts but they seem very realistic to me.
protagonist
Posts: 9242
Joined: Sun Dec 26, 2010 11:47 am

Re: The Power of Working Longer

Post by protagonist »

FWIW, results of a 2013 Gallup poll:

"U.S. retirees are consistently more likely than nonretirees to report having enough money to live comfortably. This year, 75% of retirees versus 67% of nonretirees say they are financially comfortable right now. Since 2002, the average gap has been 10 percentage points in favor of retirees."

"one thing is clear, household income does not explain retirees' greater likelihood of saying they are financially comfortable. Nonretirees are significantly more likely to report annual household incomes of $75,000 or higher. Retirees are more likely to fall in the $30,000 to less than $50,000 range, while the two groups have similar percentages in the other income categories."

"Rather, retirees may report a more financially comfortable situation because they have lower average expenses than nonretirees do."

"Although many may think of retirees as struggling to make ends meet on fixed incomes, retirees themselves are more likely than nonretirees to say they have enough money to live comfortably. This is true even though retirees generally report lower household incomes than nonretirees."

"This pattern has been consistent throughout the 12 years Gallup has asked about financial comfort, although it is not clear if the trend will continue in the future."
http://news.gallup.com/poll/162890/reti ... irees.aspx

To put all this in context, an income of $100K puts you in approx. the top 8% of Americans. 92% make less than you do. http://graphics.wsj.com/what-percent/
Bacchus01
Posts: 3182
Joined: Mon Dec 24, 2012 8:35 pm

Re: The Power of Working Longer

Post by Bacchus01 »

CnC wrote: Thu Jan 25, 2018 10:13 am I'm still really struggling with the fact noone has pointed out that basic math does not work in their favor.


6 months of extra work ≠ saving 1 % for 30 years. How am I the only one to poi t this out?
Yeah. So, saving 1% a year more, or approximately 30% of an annual salary, not including compounding, is like working longer at 25-50% more salary?

Well, duh.
protagonist
Posts: 9242
Joined: Sun Dec 26, 2010 11:47 am

Re: The Power of Working Longer

Post by protagonist »

LadyGeek wrote: Fri Jan 26, 2018 10:01 am You still need to have a baseline amount of money to be able to make this decision.

Here's how to get there: Importance of saving early

The authors' model is defined by differences to the life-cycle model. For those who may need a refresher, the wiki has some background info: Life-cycle finance

Saving early is not as easy as it might look through the retrospectoscope of a retiree.

Young people tend to make a lot less money, have a lot less of a security blanket, and are more likely to be saddled with the costs of raising children, student loans, and rents/mortgages. Necessities cost a much larger percentage of their income and nest egg. The more you make, the easier it is to save a fixed percentage of your salary. A person making $100K/yr can save 10% without putting much of a dent in their lifestyle. But for one making $10K/yr. to save at the same 10% rate ($1K/yr) could mean the difference between being able to put food on the table or pay the rent that month.
Last edited by protagonist on Tue Jan 30, 2018 8:53 pm, edited 1 time in total.
User avatar
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: The Power of Working Longer

Post by willthrill81 »

protagonist wrote: Tue Jan 30, 2018 8:34 pm FWIW, results of a 2013 Gallup poll:

"U.S. retirees are consistently more likely than nonretirees to report having enough money to live comfortably.
Keep in mind that those have decided to retiree (i.e. retirees) are more likely to be comfortable with their finances than those who have not decided to retire. Granted, some are forced into retirement, and some are financially able but still unwilling to retire for whatever reason, but those are the exceptions.

Correlation does not equal causation. Retiring does not necessarily make one comfortable with one's finances.
protagonist wrote: Tue Jan 30, 2018 8:53 pm
LadyGeek wrote: Fri Jan 26, 2018 10:01 am You still need to have a baseline amount of money to be able to make this decision.

Here's how to get there: Importance of saving early

The authors' model is defined by differences to the life-cycle model. For those who may need a refresher, the wiki has some background info: Life-cycle finance

Saving early is not as easy as it might look through the retrospectoscope of a retiree.

Young people tend to make a lot less money, have a lot less of a security blanket, and are more likely to be saddled with the costs of raising children, student loans, and rents/mortgages. Necessities cost a much larger percentage of their income and nest egg. The more you make, the easier it is to save a fixed percentage of your salary. A person making $100K/yr can save 10% without putting much of a dent in their lifestyle. But for one making $10K/yr. to save at the same 10% rate ($1K/yr) could mean the difference between being able to put food on the table or pay the rent that month.
I agree. Realistically, very few under the age of 30 actually start saving in earnest for retirement, and this is likely to 'get worse' as student loan repayments loom larger over time. I was 28 when I started saving 15% of my gross income; now it's over 50%.
The Sensible Steward
protagonist
Posts: 9242
Joined: Sun Dec 26, 2010 11:47 am

Re: The Power of Working Longer

Post by protagonist »

willthrill81 wrote: Tue Jan 30, 2018 8:53 pm
protagonist wrote: Tue Jan 30, 2018 8:34 pm FWIW, results of a 2013 Gallup poll:

"U.S. retirees are consistently more likely than nonretirees to report having enough money to live comfortably.
Keep in mind that those have decided to retiree (i.e. retirees) are more likely to be comfortable with their finances than those who have not decided to retire. Granted, some are forced into retirement, and some are financially able but still unwilling to retire for whatever reason, but those are the exceptions.

Correlation does not equal causation. Retiring does not necessarily make one comfortable with one's finances.
True, and I was not suggesting a causal link. I was just pointing out that the conclusions support Aloha Joe's analysis of retirement above....75% feel comfortable, despite the fact that the median retirement net worth is "only" ~200K and, acc. to Joe, 26% have "no retirement savings". People who state that you need millions to retire comfortably are misleading others. Very few Americans fall into that category, and yet 75% of retirees feel "comfortable".
User avatar
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: The Power of Working Longer

Post by willthrill81 »

protagonist wrote: Tue Jan 30, 2018 8:59 pm
willthrill81 wrote: Tue Jan 30, 2018 8:53 pm
protagonist wrote: Tue Jan 30, 2018 8:34 pm FWIW, results of a 2013 Gallup poll:

"U.S. retirees are consistently more likely than nonretirees to report having enough money to live comfortably.
Keep in mind that those have decided to retiree (i.e. retirees) are more likely to be comfortable with their finances than those who have not decided to retire. Granted, some are forced into retirement, and some are financially able but still unwilling to retire for whatever reason, but those are the exceptions.

Correlation does not equal causation. Retiring does not necessarily make one comfortable with one's finances.
True, and I was not suggesting a causal link. I was just pointing out that the conclusions support Aloha Joe's analysis of retirement above....75% feel comfortable, despite the fact that the median retirement net worth is "only" ~200K and, acc. to Joe, 26% have "no retirement savings". People who state that you need millions to retire comfortably are misleading others. Very few Americans fall into that category.
I mostly agree, but remember that pensions are a dying breed for most in the private sector, and SS is projected by the SS administration, under current law, to have benefits cut by 30% within around 15 years. As such, the need for Americans to have large nest eggs to retire comfortably is definitely growing.
The Sensible Steward
smitcat
Posts: 13227
Joined: Mon Nov 07, 2016 9:51 am

Re: The Power of Working Longer

Post by smitcat »

protagonist wrote: Tue Jan 30, 2018 8:59 pm
willthrill81 wrote: Tue Jan 30, 2018 8:53 pm
protagonist wrote: Tue Jan 30, 2018 8:34 pm FWIW, results of a 2013 Gallup poll:

"U.S. retirees are consistently more likely than nonretirees to report having enough money to live comfortably.
Keep in mind that those have decided to retiree (i.e. retirees) are more likely to be comfortable with their finances than those who have not decided to retire. Granted, some are forced into retirement, and some are financially able but still unwilling to retire for whatever reason, but those are the exceptions.

Correlation does not equal causation. Retiring does not necessarily make one comfortable with one's finances.
True, and I was not suggesting a causal link. I was just pointing out that the conclusions support Aloha Joe's analysis of retirement above....75% feel comfortable, despite the fact that the median retirement net worth is "only" ~200K and, acc. to Joe, 26% have "no retirement savings". People who state that you need millions to retire comfortably are misleading others. Very few Americans fall into that category, and yet 75% of retirees feel "comfortable".
Yes - 75% of retires feel comfortable with an income between $30-50K per year. Many are on the lower side of that number. That is not what is typically spoken about on this forum and likely the largest reason folks do not realize that most retirees income is very low.
It was certainly that way for my parents and almost everyone of their friends while they were alive.
protagonist
Posts: 9242
Joined: Sun Dec 26, 2010 11:47 am

Re: The Power of Working Longer

Post by protagonist »

smitcat wrote: Wed Jan 31, 2018 8:09 am
protagonist wrote: Tue Jan 30, 2018 8:59 pm
willthrill81 wrote: Tue Jan 30, 2018 8:53 pm
protagonist wrote: Tue Jan 30, 2018 8:34 pm FWIW, results of a 2013 Gallup poll:

"U.S. retirees are consistently more likely than nonretirees to report having enough money to live comfortably.
Keep in mind that those have decided to retiree (i.e. retirees) are more likely to be comfortable with their finances than those who have not decided to retire. Granted, some are forced into retirement, and some are financially able but still unwilling to retire for whatever reason, but those are the exceptions.

Correlation does not equal causation. Retiring does not necessarily make one comfortable with one's finances.
True, and I was not suggesting a causal link. I was just pointing out that the conclusions support Aloha Joe's analysis of retirement above....75% feel comfortable, despite the fact that the median retirement net worth is "only" ~200K and, acc. to Joe, 26% have "no retirement savings". People who state that you need millions to retire comfortably are misleading others. Very few Americans fall into that category, and yet 75% of retirees feel "comfortable".
Yes - 75% of retires feel comfortable with an income between $30-50K per year. Many are on the lower side of that number. That is not what is typically spoken about on this forum and likely the largest reason folks do not realize that most retirees income is very low.
It was certainly that way for my parents and almost everyone of their friends while they were alive.
I doubt if I am typically spending more than $50K/year and I live very well. I travel to S America, Caribbean or Asia in the winters and to France in the summer. I take private music lessons in MA and in NYC. I drive from MA to NYC at least every other weekend and stay in my gf's apartment for usually 4 days at a time in Manhattan. We go out to eat a fair amount. I buy anything I want to buy and do anything I want to do. I own my home in a MCOL college town in MA. I could be spending a lot more money and I would be fine, but honestly, there isn't anything I want to spend it on that I don't already have. This year I spent more because I bought a new car, but it was my first one since 2005.
DC3509
Posts: 284
Joined: Wed Jul 12, 2017 7:25 am

NYT Story on Importance of Working Just a Little Longer

Post by DC3509 »

[Thread merged into here, see below. --admin LadyGeek]

There was a very good story in today's NYT about the importance of working just a little longer, and how doing do and increasing your SS payout can mean more (or just as much) as increasing your savings rate.

https://www.nytimes.com/2018/06/01/busi ... onger.html
AlphaLess
Posts: 3409
Joined: Fri Sep 29, 2017 11:38 pm
Location: Kentucky

Re: NYT Story on Importance of Working Just a Little Longer

Post by AlphaLess »

Nice story, thanks!

Basic math works out really well.
'56 year old planning to work until 66 (10 years), can choose to save just 1% more, or simply work 6 more weeks'.

In reality, a lot of other circumstances pop up.
For example:
- you are 55, and plan to work for just 8 more years,
- recession hits, and you are 59, and you get laid off,
- you can not find *ANY* jobs. For a while. Or forever,

Heck, it does not have to be the recession hitting you. It could also be 'age discrimination'.

Here is another amazing example.
My parents came to USA at age 50. Now around age 65.
It took around 5-10 years to get their bearings right (working from day 1, but not enough to save).
So they have 10 years to save for retirement.
For them, it is not about 1% more or 3 more weeks.
For them, it's like: they need to work an extra 5 years just to be able to be in a good situation (they spend like $30K a year and live very well).
Also, the *return* for them on Social Security Tax dollars contributed is MASSIVE: 40%!
Put another way: for EVERY dollar they pay in social security taxes (up to around $330K in lifetime earnings), they are going to get a 40% (inflation-adjusted) annuity return for life. So reaching the first bend-point is very very lucrative proposition.
Thus, even after they hit 70, and start collecting SS, by continuing to work even a little bit, they will continue increasing their SS PIA to the tune of 40% per dollar paid into SS until the first bend point.
I don't carry a signature because people are easily offended.
CnC
Posts: 961
Joined: Thu May 11, 2017 12:41 pm

Re: NYT Story on Importance of Working Just a Little Longer

Post by CnC »

:oops:

What a useless and completely false story.


"Say you are 36 and plan on retiring in 30 years. You are already saving, but realize that you will need more money. You can increase your savings by 1 percent every year until you are 66, or extend your working life by three to six months. Those few extra months on the job are likely to raise your retirement income by the same amount as those 30 years of extra savings."


This is a bald faced lie that doesn't even come close to being factually correct. The math is so bad on that one I don't know how they could type it with a straight face.
CnC
Posts: 961
Joined: Thu May 11, 2017 12:41 pm

Re: NYT Story on Importance of Working Just a Little Longer

Post by CnC »

I hate to beat a dead horse but The study, “The Power of Working Longer" twists the data is such ludicrous shapes it's obscene. They take every possible assumption to prove that their information is correct.


I read this study and it was a total sham it 1 assumes that the majority of people's retirement is only social security and they they immediately purchase an annuity with all their other savings in addition to several other specific requirements.


This study is extremely dangerous to the ill educated. It will trick them into thinking, there is no need to save extra. All I have to do is work a few weeks/months more and I'll be just as good off.

That is NOT true.
DC3509
Posts: 284
Joined: Wed Jul 12, 2017 7:25 am

Re: NYT Story on Importance of Working Just a Little Longer

Post by DC3509 »

CnC wrote: Sun Jun 03, 2018 8:57 pm I hate to beat a dead horse but The study, “The Power of Working Longer" twists the data is such ludicrous shapes it's obscene. They take every possible assumption to prove that their information is correct.


I read this study and it was a total sham it 1 assumes that the majority of people's retirement is only social security and they they immediately purchase an annuity with all their other savings in addition to several other specific requirements.


This study is extremely dangerous to the ill educated. It will trick them into thinking, there is no need to save extra. All I have to do is work a few weeks/months more and I'll be just as good off.

That is NOT true.
I haven't read the study, though appreciate the feedback. I posted here to hopefully get some discussion about it.

I think the story makes clear that the study isn't written for people who are well-off. But there are LOTS and LOTS of other people out there who -- yes, are completely dependent on social security, and scrimp just to get by. I think the point of the article is -- taking social security at 62 for those people is a total disaster and that they get a much larger return on their investment by working longer than saving their meager paychecks (especially when they might not have much to save anyway). I think that does make logical sense.
CnC
Posts: 961
Joined: Thu May 11, 2017 12:41 pm

Re: NYT Story on Importance of Working Just a Little Longer

Post by CnC »

DC3509 wrote: Sun Jun 03, 2018 9:03 pm
CnC wrote: Sun Jun 03, 2018 8:57 pm I hate to beat a dead horse but The study, “The Power of Working Longer" twists the data is such ludicrous shapes it's obscene. They take every possible assumption to prove that their information is correct.


I read this study and it was a total sham it 1 assumes that the majority of people's retirement is only social security and they they immediately purchase an annuity with all their other savings in addition to several other specific requirements.


This study is extremely dangerous to the ill educated. It will trick them into thinking, there is no need to save extra. All I have to do is work a few weeks/months more and I'll be just as good off.

That is NOT true.
I haven't read the study, though appreciate the feedback. I posted here to hopefully get some discussion about it.

I think the story makes clear that the study isn't written for people who are well-off. But there are LOTS and LOTS of other people out there who -- yes, are completely dependent on social security, and scrimp just to get by. I think the point of the article is -- taking social security at 62 for those people is a total disaster and that they get a much larger return on their investment by working longer than saving their meager paychecks (especially when they might not have much to save anyway). I think that does make logical sense.
Yes sorry if I came off harsh, but I think that while true for the lower half of people that working longer usually gives them the best returns. It is very dangerous to tell an 36 year old that he/she can substitute 1% additional savings with 3 months of extra work.

It's a matter of only citing information to prove your poi t and ignoring all others.

There needs to be massive caviots that explain that Thai is only the case for a very specific group of people and that this is in no way true for anyone who has actually saved a decent portion of their salary.
DC3509
Posts: 284
Joined: Wed Jul 12, 2017 7:25 am

Re: NYT Story on Importance of Working Just a Little Longer

Post by DC3509 »

CnC wrote: Sun Jun 03, 2018 9:11 pm
DC3509 wrote: Sun Jun 03, 2018 9:03 pm
CnC wrote: Sun Jun 03, 2018 8:57 pm I hate to beat a dead horse but The study, “The Power of Working Longer" twists the data is such ludicrous shapes it's obscene. They take every possible assumption to prove that their information is correct.


I read this study and it was a total sham it 1 assumes that the majority of people's retirement is only social security and they they immediately purchase an annuity with all their other savings in addition to several other specific requirements.


This study is extremely dangerous to the ill educated. It will trick them into thinking, there is no need to save extra. All I have to do is work a few weeks/months more and I'll be just as good off.

That is NOT true.
I haven't read the study, though appreciate the feedback. I posted here to hopefully get some discussion about it.

I think the story makes clear that the study isn't written for people who are well-off. But there are LOTS and LOTS of other people out there who -- yes, are completely dependent on social security, and scrimp just to get by. I think the point of the article is -- taking social security at 62 for those people is a total disaster and that they get a much larger return on their investment by working longer than saving their meager paychecks (especially when they might not have much to save anyway). I think that does make logical sense.
Yes sorry if I came off harsh, but I think that while true for the lower half of people that working longer usually gives them the best returns. It is very dangerous to tell an 36 year old that he/she can substitute 1% additional savings with 3 months of extra work.

It's a matter of only citing information to prove your poi t and ignoring all others.

There needs to be massive caviots that explain that Thai is only the case for a very specific group of people and that this is in no way true for anyone who has actually saved a decent portion of their salary.
I do think there was the following caveat pretty close to the top:

"In an interview, Professor Shoven said some affluent people might not need to worry about these issues. Social Security is unlikely to account for a major part of retirement income for very high-income people — those who earn, say, $500,000 a year, he said. (The researchers do suggest a way for the wealthy to profit, as we shall see.)"
CnC
Posts: 961
Joined: Thu May 11, 2017 12:41 pm

Re: NYT Story on Importance of Working Just a Little Longer

Post by CnC »

DC3509 wrote: Sun Jun 03, 2018 9:17 pm
CnC wrote: Sun Jun 03, 2018 9:11 pm
DC3509 wrote: Sun Jun 03, 2018 9:03 pm
CnC wrote: Sun Jun 03, 2018 8:57 pm I hate to beat a dead horse but The study, “The Power of Working Longer" twists the data is such ludicrous shapes it's obscene. They take every possible assumption to prove that their information is correct.


I read this study and it was a total sham it 1 assumes that the majority of people's retirement is only social security and they they immediately purchase an annuity with all their other savings in addition to several other specific requirements.


This study is extremely dangerous to the ill educated. It will trick them into thinking, there is no need to save extra. All I have to do is work a few weeks/months more and I'll be just as good off.

That is NOT true.
I haven't read the study, though appreciate the feedback. I posted here to hopefully get some discussion about it.

I think the story makes clear that the study isn't written for people who are well-off. But there are LOTS and LOTS of other people out there who -- yes, are completely dependent on social security, and scrimp just to get by. I think the point of the article is -- taking social security at 62 for those people is a total disaster and that they get a much larger return on their investment by working longer than saving their meager paychecks (especially when they might not have much to save anyway). I think that does make logical sense.
Yes sorry if I came off harsh, but I think that while true for the lower half of people that working longer usually gives them the best returns. It is very dangerous to tell an 36 year old that he/she can substitute 1% additional savings with 3 months of extra work.

It's a matter of only citing information to prove your poi t and ignoring all others.

There needs to be massive caviots that explain that Thai is only the case for a very specific group of people and that this is in no way true for anyone who has actually saved a decent portion of their salary.
I do think there was the following caveat pretty close to the top:

"In an interview, Professor Shoven said some affluent people might not need to worry about these issues. Social Security is unlikely to account for a major part of retirement income for very high-income people — those who earn, say, $500,000 a year, he said. (The researchers do suggest a way for the wealthy to profit, as we shall see.)"

Yea that is not a caviot 500k a year is nowhere in the ballpark to what we earn a year. At ±115k the maximum social security benifit is 33,500 that's less than 1/3 your income.while working. So that 33k a year while handy is certainly not the major part of retirement.

We earn under half of that 500k amount so that really doesn't hold water. Perhaps this information is valuable for people who earn under 50,000 a year to perhaps streach it to 100k a year but anyone beyond that shouldn't really take it seriously.
User avatar
Miriam2
Posts: 4383
Joined: Fri Nov 14, 2014 10:51 am

Re: NYT Story on Importance of Working Just a Little Longer

Post by Miriam2 »

"Say you are 36 and plan on retiring in 30 years. You are already saving, but realize that you will need more money. You can increase your savings by 1 percent every year until you are 66, or extend your working life by three to six months. Those few extra months on the job are likely to raise your retirement income by the same amount as those 30 years of extra savings."
My first thought when I read the story was: this simply cannot be true. I simply find it hard to believe that extending one's working life by 3-6 months at age 66 is the financial equivalent of increasing one's savings by 1 percent every year from age 36 to 66.

Then there are the obvious problems: no one knows whether you will be able to work another minute after age 66 and no one knows whether you might have foregone great returns on your extra 1% savings over that 30 year spread. The bird in the hand is the 1% savings we see every year, the two birds hiding in the bush are whether you even reach age 66 in good enough health to keep working and whether that extra work actually compensates for the foregone 1% saved over 30 years.
GuyInFL
Posts: 859
Joined: Thu Aug 04, 2016 7:17 pm

Re: NYT Story on Importance of Working Just a Little Longer

Post by GuyInFL »

Of course the more you save, the less you spend which results in having to replace less income.
I think his last statement
But I’m thinking my personal retirement plan should probably include working longer, if I possibly can.
is most pertinent. Many folks don't get to choose when to leave the workplace. Certainly working longer is a good backup plan, but to choose that over saving seems foolhardy for folks at the salary levels he cites (114K).
CnC
Posts: 961
Joined: Thu May 11, 2017 12:41 pm

Re: NYT Story on Importance of Working Just a Little Longer

Post by CnC »

Miriam2 wrote: Sun Jun 03, 2018 11:00 pm
"Say you are 36 and plan on retiring in 30 years. You are already saving, but realize that you will need more money. You can increase your savings by 1 percent every year until you are 66, or extend your working life by three to six months. Those few extra months on the job are likely to raise your retirement income by the same amount as those 30 years of extra savings."
My first thought when I read the story was: this simply cannot be true. I simply find it hard to believe that extending one's working life by 3-6 months at age 66 is the financial equivalent of increasing one's savings by 1 percent every year from age 36 to 66.

Then there are the obvious problems: no one knows whether you will be able to work another minute after age 66 and no one knows whether you might have foregone great returns on your extra 1% savings over that 30 year spread. The bird in the hand is the 1% savings we see every year, the two birds hiding in the bush are whether you even reach age 66 in good enough health to keep working and whether that extra work actually compensates for the foregone 1% saved over 30 years.

That's because it simply is not true unless you happen to be the exact picture perfect example this study is saying is "typical"

I believe it involved earning ±40k-50k a year not having 35 years of earnings no employer match and immediately upon retirement putting all your savings into an annuity. It might also only consider after tax brokerage investing.

Then if you manage to tick every box and social security accounts for the vast majority of your retirement the math kind of works. Working longer is not a plan, it is what you do when your plan fails.

Again sorry for being like a dog with a bone on this but this study has been referred to in the past and I am still shocked some University put their stamp on it. It has resulted in places like the times dangerously spreading misinformation to the financially illiterate.
Valuethinker
Posts: 48954
Joined: Fri May 11, 2007 11:07 am

Re: NYT Story on Importance of Working Just a Little Longer

Post by Valuethinker »

https://www.amazon.com/100-Year-Life-Li ... ratton+100

Scott and Gratton The 100 Year Life: living and working in an age of longevity is an excellent read around these topics. 2 respected business school professors.

As other posters note, the problem is keeping a job if you are in your 50s, and finding another one if you lose it. Age barriers are very real.

And health. You can't rely on your health holding up. You can do things on the lifestyle which are very important (do not smoke, moderate exercise, control of diet) but you can be genetically unlucky, or just unlucky. Evolution does not care much about people over 50, and so it's very much luck of the draw.
Valuethinker
Posts: 48954
Joined: Fri May 11, 2007 11:07 am

Re: NYT Story on Importance of Working Just a Little Longer

Post by Valuethinker »

GuyInFL wrote: Sun Jun 03, 2018 11:07 pm Of course the more you save, the less you spend which results in having to replace less income.
I think his last statement
But I’m thinking my personal retirement plan should probably include working longer, if I possibly can.
is most pertinent. Many folks don't get to choose when to leave the workplace. Certainly working longer is a good backup plan, but to choose that over saving seems foolhardy for folks at the salary levels he cites (114K).
"Aye, therein lies the rub"

Companies are pretty ruthless in cutting the 50+ these days. Propublica and Mother Jones did a whole profile of how this went down at IBM. These were above average performers, but the company strategy supposedly wanted a younger "look" to interact with clients in the young, dynamic tech industry.

https://features.propublica.org/ibm/ibm ... n-workers/

When I graduated from college (early 80s) IBM was a job for life. Not any more.
Ron Scott
Posts: 1090
Joined: Tue Apr 05, 2016 5:38 am

Re: NYT Story on Importance of Working Just a Little Longer

Post by Ron Scott »

Let’s rephrase:

A. If you can work longer it will almost always lead to a better financial outcome for you.
B. Choosing to retire earlier than you need to will almost never lead to a better financial outcome.
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. The solution is not to predict investment losses but to prepare for them.
Chip
Posts: 3994
Joined: Wed Feb 21, 2007 3:57 am

Re: NYT Story on Importance of Working Just a Little Longer

Post by Chip »

Ron Scott wrote: Mon Jun 04, 2018 8:04 am Let’s rephrase:

A. If you can work longer it will almost always lead to a better financial outcome for you.
B. Choosing to retire earlier than you need to will almost never lead to a better financial outcome.
Gee, you're never going to get a job writing for the NYT if you say something in 2 sentences vs. 1000 words. :P
User avatar
TheTimeLord
Posts: 12092
Joined: Fri Jul 26, 2013 2:05 pm

Re: NYT Story on Importance of Working Just a Little Longer

Post by TheTimeLord »

Let's see, 25x expenses seems to be a pretty common goal. So if you work an additional 6 months then that is .5x that doesn't come out of your portfolio to cover expenses plus if your expenses are 66% of your take home and you save 33% of your take home then that adds another .5x to your portfolio for a total difference of 1x saved by working another 6 months which is equivalent to 4% of what you have saved up until that point. In other words, gains or loses being ignored, working an addition 6 months would leave you with 25.5x of expenses where retiring would leave you with 24.5x expenses. :oops:

Seems like a good deal to me. Please note there are lots of variations in each individual's situation that could alter the assumptions above and lead to a different outcome.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
carolinaman
Posts: 5453
Joined: Wed Dec 28, 2011 8:56 am
Location: North Carolina

Re: NYT Story on Importance of Working Just a Little Longer

Post by carolinaman »

TheTimeLord wrote: Mon Jun 04, 2018 8:28 am

Seems like a good deal to me. Please note there are lots of variations in each individual's situation that could alter the assumptions above and lead to a different outcome.
The above statement is so true. I could not access the research study referenced by NYT, so I do not know the assumptions made in each instance which is necessary to validate the study's claims. However, I believe the majority of retirees income comes from SS. Given that, I can see some lower income cohorts fitting into the situations cited as SS income dramatically improves with delays.

It is a no brainer to conclude that working longer improves a retirees retirement income. Exactly how much depends on their circumstances, which varies widely. As others have cited, working longer is much better as a "plan B" rather than their primary retirement strategy as this quote states:

"Working longer: Good aspiration but not a plan. Research shows that about half of workers leave the work force earlier than they had expected due to health issues, job loss or the need to care for a loved one. If possible, have a contingency plan.: – Mark Miller, Morningstar
User avatar
bobcat2
Posts: 6074
Joined: Tue Feb 20, 2007 2:27 pm
Location: just barely Outside the Beltway

Re: NYT Story on Importance of Working Just a Little Longer

Post by bobcat2 »

Let’s take a couple whose annual income is close to the national median of roughly $60,000. On average they have saved 10% of their income or $6,000/year (in 2018 dollars). They have been saving since their early 20s and have earned an average real return of 4%. At age 65 their portfolio is worth $500,000.

By waiting an extra six months to age 65.5 to retire they will save an additional $3,000 and earn an extra $10,000 on their portfolio. Their portfolio will be $513,000. If their combined SS benefits were $27,000 at age 65, they will increase to about $28,100 if they wait six months (slightly more than a 4% increase). Assuming their life expectancy is 20 years and using a real discount rate of 2%, the present value of those additional SS benefits is about $18,000.

Alternatively, if they save 1% more per year ($600/yr.) for the thirty years from age 35 to 65 at a 4% real return they will have saved an additional $33,700 at retirement, but six months later having spent $10,700, using the 4% rule, their portfolio will be worth about $533,500 (portfolio earnings less spending).

Recap (values at age 65.5 in both cases)

Wait 6 months from age 65 to retire
Portfolio adds $13,000 to $513,000
PV of added SS benefit $18,000
Total additional benefit $31,000

Save an additional $600/yr. for 30 years (saving an additional 1% per year), but retiring at age 65
Portfolio value less 6 months of spending brings portfolio value to about $533,500
Total additional benefit $33,500

You can play with the numbers, but for this couple working an additional six months vs. saving 1% more for thirty years is not that far apart. If they were to work an additional nine months rather than six, they would very likely come out ahead vs. saving the extra 1% for thirty years. This doesn’t mean you shouldn’t save more, but rather working even slightly longer has a very powerful effect on retirement security.

While I haven’t read this paper carefully, one of the co-authors, Sita Slavov, made the point during a presentation to DC Bogleheads that the lower the level of real interest rates, the more powerful is the effect of working longer - a valid point that is often overlooked. For one thing, low interest rates make SS benefits more valuable and thus delaying benefits more valuable. Currently, and for the last several years, real interest rates have been well below their long-run averages.

BobK
In finance risk is defined as uncertainty that is consequential (nontrivial). | The two main methods of dealing with financial risk are the matching of assets to goals & diversifying.
vested1
Posts: 3492
Joined: Wed Jan 04, 2012 3:20 pm

Re: NYT Story on Importance of Working Just a Little Longer

Post by vested1 »

I found the article flawed in that it repeatedly came back to the 'breakeven" argument, which conflates retirement income with a lump sum. It also assumed, much like the SS administration does, that "retiring" means immediately filing for SS benefits, other than those elite few who are too busy on their yachts to bother filing that is.

The article leaves the impression that there are only haves and have-nots, and that the only option for the lower classes is to work until they're 70 in order to avoid living out their golden years in a cardboard box. Simplistic at best.
User avatar
Miriam2
Posts: 4383
Joined: Fri Nov 14, 2014 10:51 am

Re: NYT Story on Importance of Working Just a Little Longer

Post by Miriam2 »

bobcat2 wrote: Let’s take a couple whose annual income is close to the national median of roughly $60,000. On average they have saved 10% of their income or $6,000/year (in 2018 dollars). They have been saving since their early 20s and have earned an average real return of 4%. At age 65 their portfolio is worth $500,000.

By waiting an extra six months to age 65.5 to retire they will save an additional $3,000 and earn an extra $10,000 on their portfolio. Their portfolio will be $513,000. If their combined SS benefits were $27,000 at age 65, they will increase to about $28,100 if they wait six months (slightly more than a 4% increase). Assuming their life expectancy is 20 years and using a real discount rate of 2%, the present value of those additional SS benefits is about $18,000.

Alternatively, if they save 1% more per year ($600/yr.) for the thirty years from age 35 to 65 at a 4% real return they will have saved an additional $33,700 at retirement, but six months later having spent $10,700, using the 4% rule, their portfolio will be worth about $533,500 (portfolio earnings less spending).

Recap (values at age 65.5 in both cases)

Wait 6 months from age 65 to retire
Portfolio adds $13,000 to $513,000
PV of added SS benefit $18,000
Total additional benefit $31,000

Save an additional $600/yr. for 30 years (saving an additional 1% per year), but retiring at age 65
Portfolio value less 6 months of spending brings portfolio value to about $533,500
Total additional benefit $33,500

You can play with the numbers, but for this couple working an additional six months vs. saving 1% more for thirty years is not that far apart. If they were to work an additional nine months rather than six, they would very likely come out ahead vs. saving the extra 1% for thirty years. This doesn’t mean you shouldn’t save more, but rather working even slightly longer has a very powerful effect on retirement security.
Thank you for your helpful post Bobcat :happy
Your blue conclusion is very important, but seems to me the "working longer" has to be hopeful thinking not set planning, since we don't know what life throws at us until we're there and can take advantage of it at that time.
While I haven’t read this paper carefully, one of the co-authors, Sita Slavov, made the point during a presentation to DC Bogleheads that the lower the level of real interest rates, the more powerful is the effect of working longer - a valid point that is often overlooked. For one thing, low interest rates make SS benefits more valuable and thus delaying benefits more valuable. Currently, and for the last several years, real interest rates have been well below their long-run averages.
I take this to mean that a good bull market or series of bull markets throughout that 30 years of saving that 1% would make it more beneficial to have saved that 1% than work the 3-6 months longer. Accurate?
Beehave
Posts: 1166
Joined: Mon Jun 19, 2017 12:46 pm

Re: NYT Story on Importance of Working Just a Little Longer

Post by Beehave »

The actual study ("The Power of Working Longer") upon which the newspaper article is based came out of Stanford. The authors of the study make clear what or who the article is intended to address very early on:

"In this paper, we examine how households that are close to retirement could reassess retirement plans."

The Times article refers back to this Stanford paper its source. I read the Times article before seeing this Bogleheads thread, and took the article to be aimed at people who want to retire as soon as they figure they can (many at age 62 as soon as they can take Social Security). If you read the article that way, the reference to saving 1% more per year being equal to working 3 to 6 months longer at the end of a career is not a recommendation for saving while older to the exclusion of saving while younger, but rather of the idea that it might be good to save both while young and old and that to do the latter can be so effective that it pays to extend working even by a few months even if you do not think you have to.
2015
Posts: 2906
Joined: Mon Feb 10, 2014 1:32 pm

Re: NYT Story on Importance of Working Just a Little Longer

Post by 2015 »

Sometimes in life, it's just not about the money. Sure I could have worked longer, but would have missed out on having the last three years being the best of my life. Happy people just aren't consumed by the quicksand of always wanting to have more money (and I have more than enough, but that's beside the point).
Post Reply