The No. 1 thing that can improve the retirement security of older workers

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Ready for today’s retirement investment pop quiz?

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What is the most consequential thing you can do to improve your chances of not running out of money in retirement?

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I’ll try to answer this question in a minute, but I’ll note first that chances are good that this question is not just hypothetical but applies to you personally. A recently released survey of retirees shows that the vast majority of near-retirees are in dire financial straits. For example, according to Survey from Chatur Real Estate,

Clearly, remedial actions are urgently needed.

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what is easy to point out Will not done Makes a big difference: saving and investing more. Not that these things are not important. But the difference they do make is in the long term. If you’re already close to retirement, it’s hard to see how much your annual contribution to your 401(k) will add up to when you retire.

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Confirmation of this insight a. was done by Study a few years back by the Center for Retirement Research at Boston College, The study focused on a statistic maintained by the Center that measures the percentage of working-age adults who are at risk of being unable to maintain their current standard of living upon retirement. They call this measure the National Retirement Risk Index (NRRI).

Consider what the study authors found when simulating the effect of all working adults increasing their retirement savings contribution rate by 5 percentage points. This is a huge increase, representing more than double the current rates. And, yet, according to the researchers, this large increase had only a “relatively minor effect on NRRIs.”

The biggest impact of this mock change was for workers under the age of 40. For workers between the ages of 50 and 59, in contrast, more than double the savings and contribution rate reduced the NRRI by only 3 percentage points.

For those of you nearing retirement, it’s little help to state that you should have saved and invested more in your younger years. It just makes you feel bad about yourself. You want to know what you can do that makes a real difference.

I love small towns and railroads, my household budget is $200,000 — where should I retire?

work longer

The answer to this question provided by a Boston College study: Postpone retirement. Researchers report that postponing retirement by just two years reduces NRRIs by a third.

It has such a huge impact for several interrelated reasons. For those extra years you’re working longer hours, needless to say, you won’t be pulling money out of your retirement accounts. In addition, your Social Security benefits will increase by 8% for each year of moratorium until age 70.

Those are compelling reasons, for sure. But, as I’ve written before, there are also non-financial reasons to work longer: Early retirement is associated with increased mortality.

It must be acknowledged that not everyone can take advantage of these findings. For example, many people retire before they otherwise because of deteriorating health. But if you’re able to, working longer may be the single most important thing you can do to increase your retirement financial security.

This finding may be humbling for commenters (including me) who prefer to focus on which retirement investment strategies have the best long-term record. But it is mainly young investors who will see the benefits of a better long-term investment strategy. For those approaching retirement, the simple decision to work longer is likely to have a far greater impact.

Mark Hulbert is a regular contributor to Businesshala. Their Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be contacted at [email protected],


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