The Illusory Benefit of Working Longer on Financial Preparedness for Retirement

July 28, 2020

Working paper— Contrary to the predictions of theoretical models, working longer does not significantly increase the share of older workers who are financially prepared for retirement. 

Authors: Teresa Ghilarducci, Michael Papadopoulos, and Anthony Webb

"The Illusory Benefit of Working Longer on Financial Preparedness for Retirement," a working paper from SCEPA's Retirement Equity Lab, finds that work to age 70 is associated with an 18 percentage point increase in the share of those financially prepared for retirement compared to the 46 percentage point increase predicted in spreadsheet models.

Spreadsheet models assume workers contribute to their employer-sponsored retirement plans and delay claiming Social Security until they retire. This scenerio is more likely in theory than in reality due to the fact that most older workers claim Social Security before retirement to supplement their salaries, a path which lowers their monthly benefits. As a result, older workers' retirement wealth increases signficantly less than previously predicted. 
To give those with poor labor market options a real choice between work and retirement, the authors recommend strengthening Social Security and expanding employer-sponsored retirement plan coverage.

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