Why more Americans plan to work beyond 65

People define retirement in various ways, but the common idea is that you no longer work. This is mostly true for today's retirees. According to CNBC's August 2024 Your Money retirement study, 71% of current retirees do not work in any manner. Among those who work, 17% say they do so by choice, while only 11% say they labor because they have to.

The next generation of retirement savers appears less keen to unwind once they quit their 9-to-5 jobs. Only 11% of potential retirees polled by CNBC say they do not want to work in any way after retirement. More than a third of respondents (36%) are unsure, while the majority (53%) plan to work, either because they want to or to augment their income.

This shift in retirement expectations reflects broader societal changes. As life expectancy increases and traditional pension plans become less common, many individuals are reconsidering what retirement means to them. The concept of a "phased retirement" is gaining traction, where people gradually reduce their work hours or transition to less demanding roles rather than abruptly stopping work altogether.

According to Jamie Bosse, a certified financial planner and senior adviser with CGN Advisors in Manhattan, Kansas, working in retirement may be a wise decision for younger would-be retirees, both financially and personally.

"What's interesting about retirement is, a lot of people don't like it when they first do it, because so much of their identity was tied up in their work," she reflects. "And they're having an identity crisis, like, who am I—this old man who occasionally plays tennis? As a result, many people prefer to maintain some type of employment or schedule in retirement."

Here's why planning ahead can be a good idea.

Morningstar researchers recently analyzed retirement outcomes for American workers and discovered that 45% of US households were likely to run out of money during retirement.

However, staying at your job longer or earning some working income in retirement can significantly increase your chances of having your money last as long as you need it, according to Spencer Look, associate director of retirement studies at Morningstar Retirement.

Indeed, Morningstar's model predicts that only roughly 28% of households will fall short of retirement savings if they retire at 70, compared to 45% if they retire at 65.

These findings underscore the importance of financial planning and adaptability in retirement. As the retirement landscape evolves, individuals are increasingly recognizing the need to be proactive in managing their financial futures. This may involve not only working longer but also exploring alternative income streams, such as rental properties, investments, or entrepreneurial ventures.

"It can be very dramatic for some. You can see the results of retiring at 70," Look recently told Make It. "It is not doable for everyone. However, if you do not have enough funds, working part-time may be beneficial."

It's easy to understand why working longer hours is beneficial. The longer you work, the more time you have to presumably save a percentage of your earnings in retirement plans, and the less time you need to withdraw them. In other words, you have more money to fund a shorter retirement.

Furthermore, delaying retirement increases another source of post-working-year income: Social Security. For anybody born after 1960, full Social Security benefits, which are intended to replace around 40% of your pre-retirement income, begin at age 67. You can retire as early as 62 and earn a lower payout. Wait until you're 70, and the Social Security Administration will increase your payment by 8% for every year you wait.

Notably, nearly half of the 53% of retirement savers who want to work in retirement say they will require the additional income. The other half intends to work because they believe they will want to.

This desire to continue working in retirement isn't solely driven by financial necessity. Many retirees find that work provides a sense of purpose, social connections, and mental stimulation. Some are using retirement as an opportunity to pursue passion projects or start businesses they've always dreamed of, blending work and leisure in new ways.

Working in retirement does not have to be something you dread, according to Gerika Espinosa, a CFP at DMBA in Salt Lake City, Utah.

"There's a lot of fallacy that we can only have jobs we don't enjoy," according to her. "Getting over that helps people a lot because a lot of people in retirement struggle with purpose in general."

For customers who are falling short of their retirement income targets, Espinosa calculates the amount of income required to bridge the difference, which may be much less than they earned while working full-time.

"It changes the paradigm to, 'We only need this much money, and it can be a job I enjoy,'" she said.

Even if you don't need the money, working can be a terrific way to stay connected to your interests while keeping occupied.

And it doesn't have to be something like the high-power, high-stress job you had in the past, according to Bosse. "Maybe you're working more like a 20-hour-a-week job that kind of supports what you want to do, but still allows you to save a little bit."

For one of Espinosa's clients, this meant working part-time at an outdoor store, where he could spend the entire day talking about fishing with customers.

"Plus, he loves getting all the discounts," she said. "He's thrilled about it."

As the retirement landscape continues to evolve, it's clear that there's no one-size-fits-all approach. Financial advisors are increasingly helping clients navigate this new terrain, balancing financial needs with personal fulfillment. The key is to start planning early, remain flexible, and be open to redefining what retirement means on an individual level.