Why striving to stay in the workforce a little longer may make financial sense

While health issues and caregiving demands sometimes force women to retire early, it appears many women are willing to stay on the

job longer.

The median retirement age for an American woman is 62. The Federal Reserve says so in its most recent Survey of Household Economics and Decisionmaking (2017). Sixty-two, of course, is

the age when seniors first become eligible for Social Security retirement benefits. This factoid seems to convey a message: a fair amount

of American women are retiring and claiming Social Security as soon as they can. 

What if more women worked into their mid-sixties? Could that benefit them, financially? 

While health issues and caregiving demands some- times force women to retire early, it appears many women are willing to stay on the job longer. Fifty-three percent of the women sur- veyed in a new Transamer- ica Center for Retirement Studies poll on retirement said that they planned to work past age 65. 

Staying in the workforce longer may improve a woman’s retire- ment prospects. If that seems paradoxical, consider the following positives that could result from working past 65. 

More years at work leaves fewer years of retirement to fund. Many women are worried about whether they have saved enough for the future. Two or three more years of in- come from work means two or three years of not having to draw down retirement savings. 

Retirement accounts have additional time to grow and compound. Tax-deferred compounding is one of the greatest com- ponents of wealth building. The longer a tax-deferred retirement account has ex- isted, the more compound- ing counts. 

Suppose a woman directs $500 a month into such a tax-favored account for decades, with the investments returning 7 percent a year. For simplicity’s sake, we will say that she starts with an initial contribution of $1,000 at age 25. Thir- ty-seven years later, she is 62 years old, and that retirement account contains $974,278. 

If she lets it grow and compound for just one more year, she is looking

at $1,048,445. Two more years? $1,127,837. If she retires at age 65 after 40 years of contributions and compounded annual growth, the account will contain $1,212,785. By waiting just three years longer, she leaves work with a retirement account that is 24.4 percent larger than it was when she was 62. 

A longer career also offers a chance to improve Social Security benefit calculations. Social Security figures retirement benefits according to a formula. The prime factor in that formula is a worker’s average indexed monthly earnings, or AIME. AIME is calculated based on that worker’s 35 highest-earning years. But what if a woman stays in the workforce for less than 35 years? 

Some women interrupt their careers to raise chil- dren or care for family members or relatives. This is certainly work, but it does not factor into the AIME calculation. If a woman’s work record shows fewer than 35 years of taxable in- come, years without taxable income are counted as zeros. So, if a woman has only earned taxable income in 29 years of her life, six zero-income years are included in the AIME calculation, thereby dragging down the AIME. By staying at the office longer, a woman can replace one or more of those zeros with one or more years of taxable income. 

In addition, waiting to claim Social Security bene- fits after age 62 also results in larger monthly Social Security payments. A wom- an’s monthly Social Security benefit will grow by approx- imately 8 percent for each year she delays filing for her own retirement benefits. This applies until age 70. 

Working longer might help a woman address major retirement con- cerns. It is an option worth considering, and its poten- tial financial benefits are worth exploring. 


Gerry Mitchell, CFP®, AAMS® is a financial adviser with Communi- ty Wealth Management and may be reached at (601)649-5770 or gmitch- ell@pinntrust.com

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