Working longer may improve your finances. But that doesn't mean it will make you happier.
Looking forward to retirement seems irrational these days. Rising life expectancies and the increasing funding problems for Social Security and private pension plans have led to the recommendation that we defer retirement past the traditional age of 65—perhaps into our 70s and beyond. It’s getting to the point where many in my generation have started to assume that they might never retire at all.
It’s true that delaying retirement into your 70s will likely improve your financial situation. Yet in an age when work has come to permeate most of our waking hours, it seems even more important to delineate at least a decade when you’re still healthy enough to both reap the benefits of that hard work and devote your time to other pursuits. And yet the concept of a real retirement has come to symbolize financial irresponsibility or laziness or both.
This was not always the case. Over the last century, the retirement age has gone through enormous fluctuations, mostly dictated by public and corporate policy, not personal preference. In the period of 1950 to 1955, the median age of retirement was 66.9 for men and 67.7 for women, according to the U.S. Bureau of Labor Statistics. But changes in defined benefit plans increasingly encouraged early retirement as a way to cut the work force, and by 1990-1995 the median retirement age had dropped to about 62 for both men and women.
But as defined contribution plans such as 401(k)s have overtaken traditional pension plans, employers no longer have as much sway over the timing of their workers’ retirements. Instead, that decision is more often dictated by savings rates and the financial markets that drive investment performance. Once again employment rates for Americans ages 65 to 69 and 70 to 74 have begun to rise, a trend only accelerated by the Great Recession. As of September, 60% of workers age 65 or older had full-time jobs, up from about 55% in 2007.
Meanwhile, for anyone born after 1960, the “full retirement age” (meaning the age you get full Social Security benefits) is now 67, and there are strong incentives to delay benefits until 70.
The consequences of working longer on our health and well-being are largely unknown, but researchers at the University of Southern California have recently examined data from 12 countries, including the U.S., and their preliminary results are telling. Contrary to conventional wisdom that working longer provides a buffer for mental health, retirement actually reduces depression, their analysis shows. What does increase the probability of depression, and reduces life satisfaction, is not being bored by not working, but health conditions that impact the ability to go about your daily activities. While household wealth, being married and one’s level of education are all positively related to life satisfaction, income alone does not seem to have a significant effect on depression or life satisfaction.
Granted, many of us still won’t have a choice about when we retire. We may not be able to afford to stop working when we want to, or we may get forced into early retirement by the loss of a job. But we may also want to take a look at whether the work-until-you-drop ethos has become more of a cultural commandment then a financial imperative—“I’d get bored if I didn’t work” is the new corollary to the often-uttered “I’m crazy busy.” It’s as if retirement has become so elusive that we’ve decided to tarnish the whole concept. But there is nothing wrong with looking forward to retirement if one has done a decent amount of saving and planning.
I love working, but two decades from now I think I would prefer to downsize rather than stay in the workforce an extra five or 10 years in order to maintain my standard of living in retirement. (From a purely balance sheet perspective, if continuing to work has adverse effects on well-being, then the fiscal savings from delayed retirement may be offset by increased health expenditures.) Medicine may be prolonging our life, but that doesn’t necessarily mean that it’s improved the quality of the later stages of that life. I want to make sure that I have not just the time also but the ability to enjoy more than just a few years when work is no longer the priority.