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adjustments of 3%) from age 62 on. All dollar amounts are shown in current dollars.

However, their $51,800 (in current dollars) annual retirement income would be only 52% of their $100,000 preretirement combined earnings—much less than T. Rowe Price’s 75% general retirement income replacement guideline.

In addition, their savings of $500,000 at age 60 would only rise to $526,000 by age 70.

The Smiths conclude that retiring early will not support the retirement lifestyle they expected. So they decide to continue working a few more years and delay taking Social Security until they retire.

Stop Saving

At the same time, they want to enjoy their 60s to the fullest, so they decide to discontinue making contributions to their retirement plan after age 61. This provides them with an additional $15,000 a year to spend while they continue working. With this extra income to enjoy life, working longer may not seem as much of a burden—it may actually reenergize them.

One of the primary reasons that this new strategy is effective is that each year the Smiths work and delay taking Social Security benets, their benets increase about 8% (in today’s dollars)—almost doubling in purchasing power by age 70.

Since these increases are based on Social Security formulas and not on investment returns, preretirees have a level of assurance that, even if the markets take another turn downward, their Social Security benets will not.

  • Retire at 66: If the Smiths both

work full time until age 66, their retirement income (from savings and Social Security) would be

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about $67,900, or 68% of their preretirement earnings—much closer to the 75% guideline.

Their retirement income is now 31% higher than if they had retired at 62—even though they discontinued making retirement contributions. Moreover, their retirement nest egg by 66 would have grown to $665,400 since they did not withdraw savings while working.

If they worked one more year to age 67, they would be very close to achieving their retirement income replacement rate of 75% and have a nest egg of $691,300.

  • Retire at 70: If the Smiths decide

to continue working until 70, without making any additional contributions to their retirement accounts, they could withdraw $34,900 from their savings annually plus their initial Social Security benets of $54,100 for a total annual retirement income of $89,000—an 89% replacement rate and signicantly greater than the amount at 62. Moreover, their retirement nest egg would have grown to about $775,000 by age 70.

Making Trade-Offs

In these scenarios, the Smiths had more money to “play with” in their 60s, and they still put their retirement on sounder nancial footing. On the other hand, since they were still working, they did not necessarily have as much extra time to pursue their interests as they would have liked.

If willing to trade money for time, they might consider working part time beyond age 62. This strategy might provide them with the extra income they need to pursue a semiretirement lifestyle while not jeopardizing their nancial security when they fully retire.

For example, using the same

assumptions, if the Smiths both worked part time until 70, they

would have less to spend in their 60s but their annual income and their retirement nest egg at age 70 would be the same as if they had both worked full time until then. This is because they were able to delay Social Security benets and avoid making withdrawals from their savings, which continued to grow.

Some Caveats Not everyone, of course, will be in a

  • nancial position to pursue this new

strategy. Moreover, Ms. Fahlund stresses that those who do must avoid tapping their retirement nest egg and delay taking Social Security benets while they continue working.

“They should also try to put their nancial house in order before they fully retire by paying off their mortgage and other debts and purchasing any big-ticket items they expect to need in retirement,” she adds.

While these scenarios call for no further retirement savings to boost income, Ms. Fahlund says preretirees should strive to continue contributing at least enough to qualify for an employer match in their 401(k) plans, if available.

“Finding the right time/money balance, as well as the balance between spending and saving while working, will involve trade- offs,” Ms. Fahlund says. “But this new strategy is likely to give some investors more nancial opportunities to pursue their lifelong dreams and enjoy their 60s while also building a stronger foundation for retirement.”

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