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How Long Should I Delay My Retirement?

By Kailey Hagen – Sep 13, 2020 at 8:10AM

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Even a year or two can make a huge difference in your retirement security.

Nearly 68 million Americans are reconsidering when they're going to retire, according to a recent Edward Jones survey. Many are going to remain in the workforce longer than planned because they've seen their retirement savings plummet and they may have had to tap these funds early to cover some of their expenses. But that raises an interesting question: How long do you need to delay retirement in light of COVID-19?

The average answer was about 3.3 years for those Edward Jones surveyed, but it could be shorter or longer for you. It depends on how much COVID-19 has affected your finances and your mindset about how much you need to save for retirement. Here's what you need to know to decide if delaying retirement is right for you and how long you should delay to ensure a secure retirement.

Smiling senior businesswoman sitting on bench and talking on cell phone

Image source: Getty Images.

Benefits of delaying retirement

Delaying retirement isn't the only way to shore up a savings shortfall, but it's one of the best ways because it provides three key benefits to get you back on track faster. First, it gives you more time to save for retirement. An extra year in the workforce means an extra year of contributions, which could amount to several thousand dollars, depending on how much you typically save. If you're delaying retirement for several years, you could easily save a five-figure sum during this time.

Delaying retirement also gives your existing retirement savings more time to grow -- something that's especially important while we're in a recession. A lot of people's retirement portfolios are down right now, so if they wanted to withdraw, say, $40,000 to cover their retirement living expenses for the year, they'd have to sell off a larger percentage of their assets to get that money than they would have if they'd wanted to withdraw the same amount at the beginning of the year when the economy was strong. By delaying retirement, you're giving your investments more time to recover and rise in value again.

Finally, when you remain in the workforce longer, you're shortening the length of your retirement, which also reduces its cost. If you expect to spend about $50,000 per year on average in retirement and you delay retirement by one year, you're reducing your retirement costs by $50,000. Delaying by a few years could potentially shave hundreds of thousands of dollars off your retirement expenses.

It might also enable you to delay Social Security. Doing so may increase your monthly benefit, depending on your age, helping your checks go further later on. Here's a guide explaining how much of a difference delaying Social Security can make to your lifetime benefit.

How long should you delay retirement?

How long to delay retirement is a personal question. It depends on where you were financially before the COVID-19 pandemic, how much your retirement savings have diminished since it began, and how it's shaped your feelings about financial security in retirement. 

The best place to start is to rerun your retirement plan calculations based on your original plan and work backwards from there. First, make a note of the current value of your retirement plan. If you have multiple retirement accounts, write down all their balances. Next, estimate how much you'll spend in retirement annually. You can use the same estimate you used the first time around or build in a cushion if the pandemic has left you worried about running out of savings prematurely.

Next, plug these figures, along with your estimated life expectancy and your chosen retirement age, which you should have from your first retirement plan, into a retirement calculator. It'll ask you about your estimated annual rate of return on your investments. Use 5% or 6% per year. It's likely that over several decades your rate of return will be  higher than this, but we don't know how long this recession will last nor when the next one will arrive, so it's best to be conservative.

Your calculator should tell you approximately how much you must save monthly to reach your goal based on all the information you've entered. If you're able to save this much, you might not have to delay your retirement at all. But if your monthly savings goal isn't feasible, look into remaining in the workforce a while longer.

Rerun all the numbers again, changing only your estimated retirement age, and your calculator should present you with a new monthly savings estimate. Keep playing around with this until you find a number you're comfortable with. 

Once you've done this, begin saving according to your new plan, but check in with yourself at least once per year and every time you experience a major financial event, like the birth of a child, a job loss, or a new job. Follow the procedure above to make sure you're still on track for your planned retirement. If you're behind, you may have to delay retirement a little longer and if you're far ahead, you might consider moving your retirement date up again.

It's all a little complicated because there are so many variables to retirement planning anyway, and now we also have to consider the variables COVID-19 has caused, including the effect the recession has had on retirement savings. But retirement planning was never meant to be a one-and-done thing. You have to keep revisiting your plan regularly, even in good times, or you risk falling behind and running out of savings prematurely.

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