You Could Work a Little Longer to Build More Retirement Savings—or Invest More Creatively through Self-Direction
Published on December 17, 2018
Did you know that by working six months longer, workers can reap significant Social Security compounding benefits? A Stanford University economics professor, John Shoven, says that older people who are behind on their retirement savings goals can catch up pretty well and increase their retirement standard of living by working just six months longer (and paying into Social Security).
In his paper, “The Power of Working Longer,” Shoven showed that postponing retirement by just three to six months is equivalent to saving an additional percentage point of earnings for 30 years. Plus, for individuals who are in their mid-60s, working just one month longer is equal to saving ten more years for retirement.
Shoven’s study is geared toward people ages 62 to 69 who have a retirement plan but have saved less money for retirement than they desire, have an annual income up to about $200,000 and who rely largely on Social Security during their retirement years. His model used an inflation-adjusted rate of six to eight percent real returns and assumed a safe strategy of investing mostly in bonds.
However, even with higher risk factored in, Shoven found that working slightly longer was still the better way to raise retirement income. Those extra months enable individuals to contribute more to their retirement plans while also boosting Social Security benefits by continuing to pay into the system.
Working a couple of years longer than originally anticipated—say, retiring at age 66 instead of 64—provides even more income when factoring in contributions to both one’s retirement plan and Social Security. Of course, as with any financial planning around one’s retirement age and when to claim Social Security benefits, it’s always best to consult a trusted advisor.*
Invest smarter—and make self-direction work for you
If working longer than originally planned isn’t for you, but investing in alternative assets is, you can boost your potential retirement savings with a self-directed IRA. If you start early enough (or are able to make additional catch-up contributions later on), and you are comfortable making your own investment decisions, self-direction can work for you in a number of ways:
You can build a more diverse retirement portfolio that is not dependent on stocks, bonds and mutual funds – or subject to stock market volatility
- You can include nontraditional investments you may already be investing in outside of your existing retirement plan (such as real estate, precious metals, unsecured or secured loans, private equity)
- You’ll enjoy the same tax advantages of regular IRAs – tax deferred or tax free earnings, depending on the type of account you use
So, you can keep that original retirement date on your calendar and start putting a broader array of investments in your retirement plan with a self-directed IRA. Next Generation makes setting up and funding your new account easy with our helpful starter kits, and our team is here to answer your questions about this type of retirement strategy. Contact Next Generation via email at NewAccounts@NextGenerationTrust.com or call us at 1.888.857.8058 or email NewAccounts@NextGenerationTrust.com.
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*Next Generation Trust Company (“NGTC”) does not review the merits or legitimacy of any investment. NGTC does not endorse or recommend any companies, products, services or investments. NGTC does not provide any financial, legal or investment advice.
If the services of NGTC were recommended by any third party, such persons or entities are not in any way affiliated with NGTC. All information provided is for educational purposes only. All parties are encouraged to consult with their professional advisors prior to making any investments.
Next Generation Services (NGS) is a third-party administrator of self-directed retirement plans, located in Roseland, New Jersey. NGS handles all the back office administration, record keeping, mandatory reporting, and transaction support. Accounts are named with Next Generation Trust Company as the custodian and holder of assets, for benefit of the individual account.
NGS does not review the merits or legitimacy of any investment. NGS does not endorse or recommend any companies, products, services or investments. NGS does not provide any financial, legal or investment advice.
If the services of NGS were recommended by any third party, such persons or entities are not in any way affiliated with NGS. Next Generation Services is not a “fiduciary” as defined in the IRC, ERISA, and/or any applicable federal, state or local laws. All information provided is for educational purposes only. All parties are encouraged to consult with their professional advisors prior to making any investments.
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