Study: Working Longer vs. Saving More

savebuttonbankHere’s a working paper titled The Power of Working Longer by Gila Bronshtein, Jason Scott, John B. Shoven, Sita N. Slavov which compares the effect of working longer (delaying your retirement date) and increasing your savings rate while working.

The basic result is that delaying retirement by 3-6 months has the same impact on the retirement standard of living as saving an additional one-percentage point of labor earnings for 30 years. The relative power of saving more is even lower if the decision to increase saving is made later in the work life. For instance, increasing retirement saving by one percentage point ten years before retirement has the same impact on the sustainable retirement standard of living as working a single month longer.

Update: I read the full paper and here’s my view. For most households earning less than $100,000 a year with average savings rates, Social Security changes matter more than returns on investment portfolio. What really matters is delaying Social Security and getting the resulting higher monthly income for life. For most people, that’s the same as working longer as they can’t just wait around without a paycheck.

If you are close to retirement, chances are that working longer is the best practical solution to improving your financial outlook. Working longer means your portfolio grows a bit more hopefully, your Social Security check gets bigger, and your retirement length gets shorter (annuities pay more).

However, if you are young, it is quite easy to tell yourself today that you’ll simply work a bit longer far in the future. When the time comes, you may not be given the option of working longer either due to job loss or disability. If you take this too far, you could just tell yourself that you’ll simply work until you die and you won’t have to save anything at all.

You can pay $5 for the full paper, or you may be able to get free access if you have a .edu or .gov e-mail address.


  1. I saw something similar mentioned in the Bogleheads Forum about a week ago (may have referenced the same white paper; I’m not sure). I haven’t read the full paper, but the idea behind it makes sense – if you work longer, you build up a larger portfolio while you delay drawing it down. You also delay social security benefits, which can increase the benefit if you are at full retirement age.

    I think this is encouraging in a sense, but also dangerous if taken out of context (retirement planning is much more nuanced than saying, “I’ll just work 6 more months to make up for my low savings rate when I was younger.”). You hit the nail on the head when you said it’s easier to increase your savings rate when you are young, vs. shifting the responsibility to your older self.

    I’m in the camp of saving as much as I can now (while still living a comfortable life) so that I have options when I’m older. My goal is financial independence so the decision to work longer becomes one of want vs. one of need.

    • I agree, it’s more if you’re old, the best thing you can do is work longer as you have few options. But if you’re young, the best thing you can do is still to save more. Every year working is still one less year of your finite lifetime doing what you want.

  2. According to the Bogleheads thread, the paper assumes:
    – 0 real returns
    – saving doesn’t begin until age 36
    – immediate annuitization of all savings upon retirement
    – heavy reliance on social security (and the increased income with later social security benefits start)

    It may be academically useful, but the conclusions of the paper are not relevant to individuals planning retirement.

    • I have read the entire paper and that’s not quite the full story either. 0% real returns may give you the 3 months number (working 3 months longer = 1% higher savings rate for 30 years), but even 8% real returns only get you to the 6 months number (working 6 months longer = 1% higher more savings rate for 30 years).

      I think that it is somewhat applicable for household near the median income and savings a modest percentage (5% to 10% of income). If you may $50k and save 5%, that’s $2,500 a year. At that size, the effective size Social Security will dwarf your portfolio. Delaying Social Security for a year does make a big difference, as it increases your income forever. I think more households should be educated about the power of delaying Social Security. However, for most household that’s the same as working longer as they need income.

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