Working Paper: NBER ID: w24226
Authors: Gila Bronshtein; Jason Scott; John B. Shoven; Sita N. Slavov
Abstract: This paper compares the relative strengths of working longer vs. saving more in terms of increasing a household’s affordable, sustainable standard of living in retirement. Both stylized households and actual households from the Health and Retirement Study are examined. We assume that workers commence Social Security benefits when they retire. The basic result is that delaying retirement by 3-6 months has the same impact on the retirement standard of living as saving an additional one-percentage point of labor earnings for 30 years. The relative power of saving more is even lower if the decision to increase saving is made later in the work life. For instance, increasing retirement saving by one percentage point ten years before retirement has the same impact on the sustainable retirement standard of living as working a single month longer. The calculations of the relative power of working longer and saving more are done for a wide range of realized rates of returns on saving, for households with different income levels, and for singles as well as married couples. The results are quite invariant to these circumstances.
Keywords: retirement; social security; savings; working longer
JEL Codes: D14; H55; J26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| delaying retirement (J26) | increased retirement benefits (J26) |
| delaying retirement (J26) | savings accumulation (E21) |
| delaying retirement (J26) | annuity pricing (G19) |
| each additional year of work (J29) | higher monthly benefits (H55) |
| each additional year of work (J29) | additional contributions to retirement accounts (D14) |
| delaying retirement by 36 months (J26) | retirement standard of living (J26) |
| saving an additional one percentage point of labor earnings for 30 years (J32) | retirement standard of living (J26) |
| increasing retirement savings by one percentage point ten years before retirement (J26) | lesser impact than working an additional month (J22) |
| relative power of working longer (J29) | invariant across different income levels and household types (D19) |