Want a comfortable retirement? Work longer.
Delaying retirement by a few months can raise your retirement income as much as decades of saving a little extra, new research found.
"The longer work can be sustained, the higher the retirement standard of living," the authors of a study published January by the National Bureau of Economic Research wrote.
For example, retiring at 66 instead of 62 increases your retirement income by a third, the study found.
"No reasonable amount of additional saving could impact the retirement standard of living so significantly," the authors wrote.
Why working longer works
For most people, a large fraction of retirement income comes from Social Security. While saving more increases the portion of retirement income that comes from contributions to retirement accounts like a 401(k), delaying retirement raises all sources of income.
Working longer and delaying Social Security payments increases the size of both your Social Security payouts and the income from private retirement accounts. Saving for retirement is extra powerful when you're young because of compound interest. But if you need to catch up later in life, there's less time for interest to accumulate. (It makes sense to buy life insurance when you're young, too. You can see how rates depending on your age in these tables.)
The later you start to save for retirement, the more of your income you need to set aside compared to someone who starts earlier. Meanwhile, the effect of delaying retirement gets stronger the more you wait.
A 62-year-old who delays retirement a year can increase retirement income by 6.7%, but waiting eight years increases their return by almost 75%, the study found.
But what if you don't want to work longer?
Increasing your retirement income is certainly a prudent thing to do. But what if you really, really hate working?
There are other options, but they're most effective when you start young — remember compound interest? Think of it like a snowball, said Michael Ciccone, a certified financial planner and associate vice president at Tradition Advisers in New Jersey.
"Adding a few years and a few dollars to the start of that 'snowball' can result in a much bigger snowball in the end due to the compounding effects," Ciccone said.
For workers with 401(k) plans, the first priority should be to save at least enough to receive a full company match on contributions, if it's offered. This is money your company is giving you just for saving, so don't leave it on the table.
Aside from that, most people should set aside 10% to 15% of their income for retirement, but people who want to retire early may want to save even more, Ciccone said. One painless way to reach these levels is to set your contributions to increase automatically over time.
If your retirement account doesn't have this feature, try increasing your contribution every time you get a raise.
"You won't miss saving money you never got used to spending," Ciccone said.
If it's available, younger savers may want to take advantage of a Roth 401(k) instead of a traditional 401(k). With Roth accounts, money gets taxed going in, but when it comes out, hopefully having multiplied many times over, it's tax-free.
Older people who really want to stop working may want to switch to part-time work instead of retiring altogether, Ciccone said. You may get paid less, but you can switch to a field you're more passionate about and stave off the "retirement regret" some people feel when they start to miss the social connections they had at work.
If you're ready to quit the 9-to-5, it's a good idea to plan for the expenses you'll still face. To help, we've got insights on what health care will cost you in retirement here.