Retirement is an exciting prospect, and for some, it's too tempting to resist. The average senior signs on for their golden years at age 62, according to a 2014 Gallup poll. Unfortunately, a separate study by Fidelity found that 55% of of current retirees are at risk of running out of money before the end of their lives. If you're having second thoughts about retirement, keep these factors in mind. They can help you decide whether a few more years of employment is worth the effort.
1. You're bored
Retirement wasn't quite what you expected, and you're feeling more restless than relaxed. You're not alone: roughly 30% of retirees would return to the workforce if given the chance, and the benefits are tangible. In addition to extra income, remaining employed is better for your brain according to a 2013 French health study, which found that the risk of dementia increased by 15% among retirees who left their jobs by age 60. On the other hand, participants who worked as little as five years more remained engaged and mentally fit. Consider your personal temperament and how you're handling the hours of free time. You might find value in working longer.
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2. Your expenses are unpredictable
The current price tag of retirement is nearly $750,000 according to a Fidelity study, but that number varies depending on your location, health, and several other factors. Limiting budget-busters before taking the plunge is crucial, and you may have jumped in too early if you're worried about these:
- Housing: Mortgage debt probably drains a decent chunk of your retirement income, limiting your spending power and ability to handle variable expenses like property taxes, maintenance, and utility costs. For renters, it's also important to consider the market climate and its effect on your retirement plans. For example, rental prices in Seattle have climbed 57% in the last six years, a trend that isn't likely to slow down. If mortgage debt is weighing you down or you're worried about rental prices going up, a few more years in the workforce could help you pay off debt, save, and earn some peace of mind.
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- Consumer Debt: Credit card balances are risky in any scenario thanks to variable interest rates, and retiring with this kind of debt exposes you to unnecessary losses. For example, at 18% APR, a $10,000 Visa balance would take more than five years of $250 monthly payments to repay, and would cost you nearly $5,400 in interest along the way. Holding on to these debts means wasting your savings and missing the chance to enjoy retired living.
- Family Obligations: Your money isn't your own if you're still footing the bill for your adult children or lending cash to friends and relatives. Removing yourself from these situations can be tricky, and it's worth it to consider the effects on your savings in retirement.
3. You don't qualify for Medicare
Medicare coverage doesn't kick in until age 65, and if you have already retired, you've probably purchased individual coverage. While this option can help you pay for doctor's visits, hospitalizations, prescriptions, dental, and vision care, it's a safe assumption that you're paying more than you would have with employer-sponsored coverage. For example, through the Healthcare Marketplace, a healthy 62 year-old Illinois couple with a $39,000 annual income qualifies for $1,008 in monthly health tax credits, but silver-tier coverage will still cost them an average of $366 a month in premiums, an annual $2,500 deductible, and an out-of-pocket maximum of $11,400. Consider how the high cost of medical care is affecting your retirement resources. It might be worth it to return to work until you qualify for Medicare.
4. You're withdrawing early Social Security benefits
You're allowed to claim Social Security benefits any time between ages 62 and 70, but the full retirement age is 66 for most people, and as you know if you're currently claiming benefits, early withdrawals can significantly reduce the size of your monthly check. If you're claiming benefits at age 63, for instance, your monthly check only provides 80% of your primary insurance amount, which is what you'd receive if you claimed benefits at your full retirement age of 66. The table below illustrates the difference in benefits based on your age.
| Claiming Age | Percent of Primary Insurance Amount | Amount (Assumes a $1,500 Primary Insurance Amount) |
|---|---|---|
| 62 | 75% | $1,125 |
| 63 | 80% | $1,200 |
| 64 | 87% | $1,300 |
| 65 | 93% | $1,399 |
| 66 | 100% | $1,500 |
Source: Social Security Administration.
Retiring a few years too early can significantly affect your monthly income for the rest of your life. If you've changed your mind about making early withdrawals, you can rescind your benefits within 12 months of claiming them, but you must repay all the income you received, including taxes withheld from your check. While this may be a tough decision, it's important to weigh the benefits of waiting to tap into Social Security.
5. Your financial planner isn't happy
Your excitement to leave the workforce may have overshadowed the advice of your financial planner, and now that you're retired, it's more important than ever to listen to their recommendations. They've probably reminded you of the opportunities you're missing by retiring early and tapping into your investments, including:
- Catch-up Contributions: If you're 50 or older, the IRS allows you to contribute an extra $6,000 per year to your 401(k) or 403(b) plan in addition to the standard $18,000, and an additional $1,000 to the standard $5,500 for your traditional and Roth IRAs. Assuming a 7% return, maxing out your contributions for five years would add $179,000 to your savings. Leaving the workforce also meant leaving these options behind, including matching contributions from your employer. That said, it's never too late to reenter the workforce to take advantage of the benefits.
- Delaying Withdrawals: In addition to Social Security, delaying 401(k), IRA, and other investment withdrawals can make you richer in the long run by allowing your investments to grow. For example, at a 7% return, $600,000 would accumulate another $42,000 in a single year. Do the math to learn how much you're sacrificing by making early withdrawals. If you can, it's worth it to tighten your budget.
There's no perfect way to retire, but that doesn't mean you should jump ship without a few safeguards in place. Reconsider your retirement status and decide if you can stand another few years on the job.
