Christine Fahlund, a senior financial planner at investment manager T. Rowe Price, stopped by and shared a cool chart showing how much more money you get in retirement if you keep working for even just a few more years. It wasn’t the first time she’s had this conversation, but I still thought it was interesting—perhaps even useful?—enough to post. First I’ll give you the chart, and then after the break I’ll talk a little more about it (just click on “Read full entry”).
There are a few other assumptions explained elsewhere in the report that this chart comes from. The person we’re crunching these numbers for makes a salary of $100,000, has $500,000 in tax-deferred savings at age 62, lives in a universe with 3% inflation, and has an asset allocation of 40% stocks, 40% bonds and 20% short-term bonds and cash.
So let’s put some numbers to it. If this person retires at age 62, he’ll get about $37,000 a year—from Social Security and withdrawing 4% of his $500,000 nest egg. (Four percent is what Fahlund recommends.) If, though, he waits five more years, until age 67, he’ll collect between 38% and 50% more, depending on how much he continues to save. If during those last five years of working, he saves 25% of his salary, he’ll wind up collecting more than $55,000 a year in retirement. If he keeps working and saves at a rate of 15%, he’ll get more than $53,000 annually.
But here’s the ringer. By working five more years and not saving any of that additional money, he’ll still see his annual take-home during retirement jump to more than $50,000. In other words, it’s not about saving more; it’s about preserving your existing retirement funds longer and putting off collecting Social Security (which, in the end, gets you more).
Of course, you also still have to have a job. But if you’re antsy about not having saved enough, it’s nice to have simply working longer as the best option for boosting your retirement income.