1.4 Choosing the Retirement Date & The Power of Working Longer

1.4 Choosing the Retirement Date & The Power of Working Longer

Core Principle: Choosing when to retire is often the most powerful retirement income decision a client controls. Each extra year of work adds savings, lets assets grow, shortens the period the portfolio must fund, and can raise Social Security and pension income. Many retirees also lose control of the date through health problems or job changes, so plans need a fallback.

Retirement Date vs. Claiming Date

RICP 354 treats the retirement age decision separately from the Social Security claiming decision:

• Retirement date: When earned income stops (or drops, in phased retirement).
• Claiming date: When Social Security benefits start. Benefits can begin as early as 62 and grow until 70, no matter when work ends.

A client who retires at 62 can bridge to a later claiming age by drawing from savings, taking a period-certain annuity, or doing part-time work. A client who keeps working past 62 and claims early may lose benefits to the retirement earnings test until FRA.

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Factors in the Retirement Age Decision

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The Reality: Many People Retire Earlier Than Planned

Plans built around working to 67 can fail if the client leaves earlier. EBRI and Greenwald Research's 2026 Retirement Confidence Survey found:

• 46% of retirees left the workforce earlier than planned.
• The median retirement age reported by retirees was 62, while workers' median expected retirement age was 65.
• Among those who retired early, common reasons were a health problem or disability (41%), changes at their company (35%), and being able to afford it (36%).

Planning implication: Stress-test the plan for an earlier, unplanned retirement. Keep an emergency reserve, consider disability coverage while working, and know the bridge strategy (which accounts to draw from and how to cover health insurance) before it is needed.

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The Power of Working Longer

Working longer improves retirement security in several ways at once:

1. More contributions to retirement accounts, including catch-up contributions (in 2026, the 401(k) catch-up is $8,000 at 50+, and $11,250 at ages 60–63 where the plan allows).
2. More years of growth before withdrawals start.
3. Fewer years the portfolio must fund.
4. Higher Social Security: Claiming a year later raises benefits by about 6.7% per year before FRA (5/9 of 1% per month for the first 36 months) or 8% per year after FRA. Another year of earnings can also replace a low year in the AIME.
5. Higher pension or annuity income: Pension formulas often grow with service and pay, and a life annuity bought at an older age pays more per dollar.

Research Evidence

Bronshtein, Scott, Shoven, and Slavov ("The Power of Working Longer," NBER) compared working longer with saving more. Delaying retirement by 3 to 6 months raised the sustainable retirement standard of living about as much as saving an extra 1% of earnings for 30 years. Saving more late in a career had even less effect than working a little longer.

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Phased Retirement and Working in Retirement

Many clients do not stop all at once:

• Part-time work or consulting keeps some earned income, which reduces portfolio withdrawals in the fragility zone.
• Social Security: If benefits have started before FRA, the earnings test applies. After FRA, earnings do not reduce benefits.
• Retirement accounts: Earned income allows IRA and Roth IRA contributions at any age, and a still-working employee may delay RMDs from the current employer's plan (unless a 5% owner).
• Medicare coordination: With group health coverage from current employment at an employer with 20 or more employees, the group plan generally pays first. Enrollment timing must still follow the Part B rules.
• Health insurance: Phased-retirement arrangements should confirm whether the client still qualifies for employer health coverage.

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Advisor-Client Case Scenario: 62, 65, or 67?

Diane (60) and Mark (61) want to retire in two years. They have $1,100,000 saved and expect to spend $95,000 a year. Mark's pension formula is 1.5% of final-average pay per year of service; it grows by about $1,200 a year for each extra year he works. Diane's employer offers retiree health coverage only if she works until 62 with 15 years of service.

Their advisor compares three dates:

• Both retire at 62: Diane qualifies for retiree health coverage for both of them. The portfolio must fund about $60,000 a year until Social Security starts. The initial withdrawal rate is high, and Monte Carlo success falls below the target range.
• Diane retires at 62; Mark works to 65: Mark's salary covers most spending, they save three more years, Mark's pension rises, and the portfolio stays largely untouched through the fragility zone. Success moves into the target range.
• Both work to 67: This is the strongest financial result, but it gives up time the couple values, and Diane's physically demanding job raises the risk of an unplanned early exit.

Recommendation: Diane retires at 62 to lock in the retiree health coverage. Mark works to 65 and then claims Social Security later, depending on their health and the survivor analysis. The plan also includes a fallback: if Mark has to stop early, they draw from the taxable account first and delay Social Security.

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Exam Tip

• Retirement age and claiming age are different decisions. A bridge strategy lets a client retire early and still claim later.
• Nearly half of retirees retire earlier than planned (EBRI 2026: 46%), most often for health or job reasons. Plans need an early-retirement fallback.
• Working longer is high-leverage: 3 to 6 months of extra work can match 30 years of saving an extra 1% of pay.
• Before 65, health insurance is a central retirement-date constraint. Check retiree health coverage, COBRA, and ACA marketplace options (Section 5.5).