Obviously, the longer the delay, the more likely one is to reach a retirement goal. That’s because, Hughes contends, it is the extension of the power of compounding over years that makes a big difference.
But even just a few months delay can help, according to the study.
“The basic result is that delaying retirement by three to six months has the same impact on the retirement standard of living as saving an additional 1 percentage point of labor earnings for 30 years,” according to the study.
Saving for a few months or a few years longer along with letting the compounding effect continue a bit longer are some of the key strategies, the NBER study argues, in helping those who started late in retirement planning to catch up.
These additional years, NBER argues, will be more effective than just switching to a better kind of investment in the last few years before retirement. For many close to retirement, whether single- or two-earner households, the best option is delay, the study says.
“Our key insight is that some decisions, such as how much to save in retirement accounts going forward, become less powerful at older ages in changing the affordable retirement standard of living. Saving an additional 1 percent of earnings, for instance, would affect the retirement standard of living much more at age 36 than at age 56,” NBER writes.
“Similarly, the impact of choosing cost-efficient assets -- something financial planners often emphasize to increase retirement resources -- diminishes with age since there are fewer years to enjoy the benefit of a lower cost portfolio.”
By contrast, the study concludes, delayed Social Security and delayed retirement savings draw downs are much more effective for those close to retirement regardless of one’s income. The study “suggests that working eight additional years will increase retirement income by at least 40 percent” and in some cases “above 100 percent.”