If you haven’t saved enough for retirement, one possible solution is working longer. But a new report by the Employee Benefit Research Institute* paints a somewhat bleak view of the benefit of doing so. The study suggests that if you haven’t saved enough in your working years, even working into your 80s won’t help.

It’s another “retirement blues” story—even working longer, a widely-touted strategy, just won’t help.

However, the narrative is a bit different if you look beneath the top-line results. It turns out that, like many such forecasts, the report attempts to estimate future health care expenses—both the money you’ll spend out of pocket (on supplemental insurance, co-pays, drugs, and so on) as well as the costs of long-term care (the cost of private at-home or nursing home care—before you deplete assets and qualify for Medicaid). Naturally, the report assumes large increases in health costs in the future.

Yet as a result of these cost assumptions, the report’s calculations essentially “blow up.” In other words, working a few extra years doesn’t matter because explosive health care costs consume any benefit you might gain. Hence the depressing results.

If this idea of a budget blowing up from health care costs sounds familiar, you’re right. As I’ve discussed in other posts, the long-term forecast of the federal government’s fiscal position also “blows up” largely because of this health-care cost effect. The same is true of the fiscal position of many states—and many private employers. What is true for major institutions is also true for many individuals. It’s not really feasible for many of us to fully “prefund” these costs—whether through higher savings rates or working more—when they are rising at double-digit rates.

So here would be my alternative headline for the study: “Working in retirement is beneficial—but rising health costs, without some reform, will derail many retirement plans.”

That headline puts the problem squarely where it should be. Devoting a rapidly growing share of the national economy to health care may be unsustainable for many individuals and institutions. But beyond this systemic problem, working into retirement still remains a smart strategy if you haven’t saved enough during your working years. And it remains smart advice if you are partially prepared—or you are unsure of whether you are adequately prepared.

So when in doubt, don’t retire—work a few more years. That way you’ll benefit from retirement planning’s ideal trifecta: more years of saving, fewer years of spending, and, with any luck, a chance for higher investment earnings.

* Jack VanDerhei and Craig Copeland, The Impact of Deferring Retirement Age on Retirement Income Adequacy, EBRI Issue Brief, no. 358, June 2011.

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