The Power of Working Longer

46 Pages Posted: 22 Jan 2018  

Gila Bronshtein

Stanford University

Jason S. Scott

Financial Engines, Inc.

John B. Shoven

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Sita Slavov

George Mason University - School of Policy, Government, and International Affairs

Date Written: January 2018

Abstract

This paper compares the relative strengths of working longer vs. saving more in terms of increasing a household’s affordable, sustainable standard of living in retirement. Both stylized households and actual households from the Health and Retirement Study are examined. We assume that workers commence Social Security benefits when they retire. 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. The calculations of the relative power of working longer and saving more are done for a wide range of realized rates of returns on saving, for households with different income levels, and for singles as well as married couples. The results are quite invariant to these circumstances.

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Suggested Citation

Bronshtein, Gila and Scott, Jason S. and Shoven, John B. and Slavov, Sita, The Power of Working Longer (January 2018). NBER Working Paper No. w24226. Available at SSRN: https://ssrn.com/abstract=3106667

Gila Bronshtein (Contact Author)

Stanford University ( email )

Stanford, CA 94305
United States

Jason S. Scott

Financial Engines, Inc. ( email )

1050 Enterprise Way, 3rd Floor
Sunnyvale, CA 94089
United States

John B. Shoven

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
650-326-5377 (Phone)
650-328-4163 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Sita Slavov

George Mason University - School of Policy, Government, and International Affairs ( email )

Founders Hall
3351 Fairfax Dr.
Arlington, VA 22201
United States

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