I first met with Steven and Janice (names changed) a few years ago. They had always saved somewhere around 5% of their salary, but at times dipped into that amount when emergencies would pop-up.

Steven, a manager of services for a school district, is the family’s main income earner; Janice spent many years out of the workforce raising their four children, and took classes to improve her skills at various professions, but has had a hard time finding anything but part-time work.

During the good years instead of catching up on saving they purchased a cabin on a lake in northern Michigan at a price that was more than their main home. The plan was always to retire there one day, and have a spot in the meantime that the children and their families could enjoy.

As time went on, these plans just didn’t work out; the children moved after college across the country and not only did they not use the cottage, they didn’t have much interest in inheriting a property that they would have to be concerned about in a far away state. They had to take out loans to maintain and repair two homes, and the costs offset much of the benefits from saving.

When faced with the reality that this part of the plan was destroying their current lifestyle Steven’s response was predictable. “I’ll work as long as I have to.”

Many retirement plan projections are run out to age 65 or 70. But our plans don’t often consider what happens if you can’t work that long. Meanwhile a recent report from The Joint Center for Housing Studies of Harvard University found that more retirees are facing cost pressures, which is a trend that is expected to continue, especially for those that counted on home equity in one or more homes in retirement.

Over the last several years though many in Steven’s position have lost the ability to earn what they need to. Others have dealt with disability, loss of loved ones, and other traumatic events that limit their ability to work at the level they need to in order to work effectively.

Clearly there is a huge downside risk to the chance we may not be able to work as long as we need to. In addition to the risks of not being able to work, there are many other financial considerations and risks that grow as we work longer:

  • Many deal with income shortages by taking Social Security benefits early. Locking in Social Security early causes a permanent reduction in earnings, and taking it while under full retirement age and working can cause a significant portion to be subject to tax.

  • If you are not able to work you may you may have to draw down retirement accounts at an unsustainable pace. You may face paying for insurance, medical expenses, and other costs that can throw off your plans further.

Whatever your current age is, it’s important to make long-term savings the backbone of your plan. Don’t wait or count on earning more in the future, or being able to work forever. You may just not be able to.

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