There are benefits to working at an older age

People nearing the end of their careers often find themselves financially unprepared for retirement.

Just think about the expenses incurred raising kids, getting through spells of unemployment and caring for aging parents. Among working households ages 55 to 64 with a 401(k)/IRA, the median balance was $204,000 in 2022, according to the Federal Reserve's 2022 Survey of Consumer Finances. Not bad, of course. But a portfolio that size generates about $8,000-plus a year using the standard 4% withdrawal guideline.

Little wonder more people have decided to improve household finances during the traditional retirement years by working longer. Roughly one in five Americans 65 years and older (19%) were employed in 2023. That's nearly double the share of those working 35 years ago, according to the recent Pew Research Center report, "Older Workers Are Growing in Number and Earning Higher Wages." The typical 65-plus worker earned $22 an hour in 2022, a sharp increase from $13 in 1987.

The financial returns to working longer are impressive. The earnings can be saved or less money withdrawn from retirement savings. A job makes it practical to delay filing for Social Security. The benefit increases substantially the longer you can wait (until age 70).

One economic study calculates that retiring at age 66 instead of at age 62 increases living standards by about one-third. "Primary earners of ages 62 to 69 can substantially increase their retirement standard of living by working longer," write four economists in "The Power of Working Longer." "The longer work can be sustained, the higher the retirement standard of living."

Other factors besides an income feed into the work longer decision. Among them: Older workers have similar or lower injury and illness rates than younger counterparts; they're better educated than previous generations; many jobs are less physically demanding than before; the workplace allows for connections and camaraderie; and the search for purpose and meaning that can (although not always) come from work.

Work isn't a panacea. Many people retire early because of deteriorating health or family responsibilities. Age discrimination is real. Still, instead of thinking about retirement, perhaps a better framing is to say your next chapter is a time for exploring what portfolio of activities comes next. Work may well fit in to that portfolio.

Chris Farrell is senior economics contributor, "Marketplace"; commentator, Minnesota Public Radio.