How Long Should I Work Before Retirement?

[See How to Finance Life Until 100.]

Health benefits. Purchasing an individual health insurance policy in your 50s or early 60s can be difficult and extremely expensive. Waiting until at least age 65 to retire eliminates a potentially huge retirement expense: retiree health insurance. Most workers (65 percent) base their retirement date on their eligibility for Medicare at age 65, Towers Watson found. Continuing to work for a company that provides benefits is one of the most cost-effective ways to find health insurance before age 65. There's also some evidence that delaying retirement has health benefits. "People have a social network at work, and they have friends and activities through the workplace that help keep their mind nimble," says Olivia Mitchell, director of the Pension Research Council at the University of Pennsylvania. "In countries with early retirement, there are much greater rates of mental and physical decline."

But when you retire isn't always a choice. Some people find themselves pushed into retirement ahead of schedule by job loss, health problems, or the need to care for family members. Almost half (45 percent) of retirees say they left the workforce earlier than planned, often due to circumstances beyond their control, according to a 2011 Employee Benefit Research Institute survey.

Second careers. Retirement is no longer a one-time, permanent event. "People are less likely today to move directly from full-time employment to full-time retirement," says Richard Johnson, a senior fellow and director of the program on retirement policy at the Urban Institute. Instead, exiting the workforce is becoming more gradual, with many employees moving to another job before leaving the workforce completely. "The baby boomers are completely reinventing the idea of retirement," says Mitchell. "They were starting to mull over this whole creative set of ideas, including working longer, changing careers, going to part-time work, having a bridge job, and becoming consultants before the financial crisis hit."

[See The Growing Challenge of Funding Retirement.]

But delaying retirement can be difficult at a time when there aren't enough jobs to go around and older workers are at the top of the pay scale. "If you want to keep working, it is a good idea to have a job lined up before you quit your current job. It can be very risky to assume you will leave this job and find another one," says Johnson. "You're probably getting paid more with your current job than you would at a new job. Most people who change jobs at older ages get a pretty significant pay cut."

Workers who need to fund their retirement years with personal savings have three choices: "You have to either save more, work longer, or cut your standard of living in retirement," says Munnell. "The best thing is to try to keep working full time as long as you can."

Twitter: @aiming2retire

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