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3 Reasons You Should Retire Later Than Planned

By Kailey Hagen – Jun 9, 2019 at 7:03AM

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Staying in the workforce a little longer could benefit your retirement savings in several ways.

Retirement is an exciting milestone in everyone's life, and most people think it can't come fast enough. But if you rush into retirement when you don't have the savings you need to last the rest of your life, your relaxing golden years could turn into a stressful nightmare. You may not be keen on extending your years in the workforce, but there are significant benefits to doing so, especially if your retirement savings aren't where you'd like them to be. I discuss three of these benefits below.

1. It gives you more time to save for retirement.

Working longer gives you more time to save for retirement. Plus, when you're older, you'll have the opportunity to set aside even more money than you did when you were younger. Adults under 50 can only contribute $19,000 to a 401(k) and $6,000 to an IRA in 2019, but once you cross the half-century mark, you can add an extra $6,000 and $1,000 to your 401(k) and IRA contribution limits, respectively.

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In addition, the money that's already in your retirement accounts has more time to compound. The longer it sits in your account, the more it will be worth, assuming you've made smart investments. Say you have $500,000 in your retirement account. If you retire today, that's probably the most you'll ever have. But if you delay retirement by just one year, that $500,000 could grow to $535,000, assuming a 7% annual rate of return. If you wait another year, you'd have over $572,000. And that's not including any additional contributions you make to your retirement accounts during that time.

2. It reduces how much money you need for retirement.

Extending your years in the workforce also shortens your retirement. If you estimate that your retirement living expenses will amount to $35,000 per year and you delay retirement by one year, you've lowered your needed savings by that amount.

When you combine this with the additional retirement contributions you're making and the extra time for your existing savings to grow, it's possible to save yourself tens of thousands of dollars by working a little longer. If your savings aren't where you'd like them to be, delaying retirement is a viable way to make up this difference.

3. It could increase your Social Security checks.

Delaying retirement could boost your Social Security checks in two ways. First, because your Social Security benefit is based on your average monthly income during your 35 highest-earning years, continuing to work could increase the amount you're entitled to if you're earning more money now than you were in the early years of your career.

Second, if you continue to work, you may be able to delay your Social Security benefits. You can begin claiming as early as 62, but if you start then, you'll only receive 70% or 75% of your scheduled benefit per check, depending on whether your full retirement age is 67 or 66, respectively. For every month you delay benefits past your 62nd birthday, your checks increase. They reach 100% of your scheduled benefit at your full retirement age and your maximum Social Security benefit at age 70. This is 124% for those with a full retirement age of 67 and 132% for a full retirement age of 66.

If you wait to claim benefits until you're entitled to a larger amount, you'll reduce the burden on your personal retirement savings. For example, if your scheduled benefit is $1,000 at your full retirement age and $1,500 at age 70, you could save yourself $6,000 per year in the latter years of your retirement by delaying benefits. That's $6,000 less per year that you need to withdraw from your personal retirement savings. Over 20 years, that adds up to $120,000.

Delaying retirement isn't right for everyone, and even if you want to, poor health or other circumstances may prevent it. But if you can delay retirement, even by a year or two, it can make a big difference in how long your retirement savings will last and the quality of life you'll be able to have.

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