The COVID-19 crisis has changed the way a lot of people plan to approach retirement. Some older workers, for example, are being forced to retire early despite a desire to keep holding down a job. But 21% of Americans now say they'll be retiring later than planned, according to a new Charles Schwab survey. And while delaying retirement may not be your ideal course of action, there are several benefits to going that route.
1. You'll save more money
The sooner you retire, the sooner you'll need to start taking withdrawals from your 401(k) or IRA to pay your living expenses. On the other hand, if you delay retirement, you'll have a chance to pad your nest egg even more.
Imagine you're able to contribute $7,000 a year -- the max you can put into an IRA right now if you're 50 or older -- for an extra three years due to delaying retirement. That gives you an additional $21,000 for your senior years, not including investment growth. If you then withdraw from your savings at an annual 4% rate, you'll have another $840 a year to work with.
That $840 may not seem like a lot, but think of the different things it could pay for:
- A sudden home repair
- A new piece of furniture
- A medical expense
- A budget weekend getaway
These are all fairly big expenses you might encounter (whether by choice or not) during retirement, so having that extra money available could help you avoid financial stress later in life.
2. You'll get a chance to boost your Social Security benefits
You're entitled to your full monthly Social Security benefit, based on your personal earnings history, once you reach full retirement age, which is either 66, 67, or somewhere in between, depending on the year you were born. But if you delay your benefits past full retirement age, they'll increase by 8% for each year you hold off, up until age 70.
The average senior on Social Security today collects roughly $1,500 a month. If that's the benefit you're entitled to at age 67, but you delay retirement -- and your filing -- for three years, you'll grow that benefit to $1,860 a month instead.
Think about the things you might do with an extra $4,320 a year. You can use that money to:
- Put a down payment on a new vehicle
- Upgrade a number of older electronics
- Make home improvements
- Take a really nice vacation
Having the leeway in your retirement budget to tackle larger expenses is apt to help you better enjoy your senior years.
3. You might save money on healthcare costs in retirement
Once you turn 65, you'll be entitled to sign up for Medicare. But if you have outstanding health coverage through your employer and keep working to stay on it a few years longer, you could really reap some savings.
Imagine you're not responsible for premiums under your current health plan because your employer pays them in full, you don't have an in-network deductible, and you have low copays. Compare your expenses to what you'd pay under Medicare, and you may find that the latter is far more expensive.
As such, staying in the workforce longer could ease the financial burden of healthcare. And given that Fidelity recently reported that the average healthy 65-year-old couple retiring this year will spend $295,000 on medical expenses throughout retirement, cutting that figure down could put a lot of money back in your hands.
Though you may be planning to retire late out of necessity more so than anything else, remember that there are benefits to doing so. That should help you feel more at peace with your decision.