The last year and a half has taken nearly everyone's portfolio for a loop. If you were considering early retirement and had almost reached your financial goals, you've had a bucket of cold water thrown in your face.

Most of us have seen big losses from our investments. But if you're in your late 50s or early 60s, you've probably suffered a lot more than most others have. Unlike those younger than you, you had already amassed a substantial nest egg toward your retirement -- a nest egg that you planned would last you for the rest of your life. Yet unlike those older than you, you still needed a few years of growth to feel comfortable quitting your job -- so you probably took more risk than they did.

Now, unfortunately, you may need a few more years to get to where you want to be. But the good news is that each extra year you work can make a huge difference to the quality of your retirement when you do decide to tender your resignation. Here's why.

More money
Working beyond your initial early retirement date has several major benefits for your finances:

  • You keep earning a salary, letting you save more toward your eventual retirement.
  • If you have good benefits at work, things like health insurance costs are far lower through an employer-provided health plan than you'd pay on your own.
  • You get closer to eligibility for Social Security and Medicare, or can increase your Social Security benefits by deferring payments longer.
  • You give your investments more time to recover without having to make withdrawals for living expenses.

Of course, those who earn big salaries will benefit more than those at lower income levels. But don't underestimate the other costs. One study from AARP suggests that early retirees pay around $8,500 per year on average for health-care costs, since Medicare doesn't kick in until you turn 65.

Investing smarter
And on the investment side, although you may be thoroughly disgusted with your portfolio's results recently, more time could help heal its wounds. Take a look at these long-term average returns on various types of investments:

Investment Category

Average Annual Return

U.S. Stocks


International Stocks






Source: Gibson Capital Management. Returns from 1982 to 2007. REIT = real estate investment trust.

Granted, you may not see those returns during the extra year or two you work. For instance, one commodity exchange-traded fund, the SPDR Gold Trust (NYSE:GLD), has performed well along with the yellow metal lately -- but there's no telling whether gold will fall from its recent $1,000-an-ounce levels or turn toward record highs.

Also, for someone approaching retirement, you shouldn't have all of your money in these risky asset classes. Yet with Treasury bonds enjoying such big returns in recent years, the conservative portion of your portfolio may be likely to see a correction in an economic recovery.

Counting on a recovery
But if anything, the future seems brighter than usual for stocks following the huge declines we've seen lately. After the bear market of 1973 and 1974, stocks gained 37% in 1975. Following the market crash of 1987, the market rose over 16% in 1988. And in the aftermath of the 2000-02 tech bust, 2003 was a banner year for stocks, with the S&P rising 28%.

Moreover, many stocks hit hardest by those bear markets bounced back strongly. Consider:


Bear Market Period

Decline During Bear

Gain in Following Year

Jan. 2000 to Dec. 2002



Akamai Technologies

Jan. 2000 to Dec. 2002



Bank of America

Sept. to Dec. 1987




Sept. to Dec. 1987




Jan. 1973 to Dec. 1974



Eastman Kodak

Jan. 1973 to Dec. 1974



Source: Yahoo Finance.

As hard as it is to believe now, the big market crash has stacked the odds in your favor for a bounceback that could re-energize your investments in the near future. And while it's impossible to be sure when the recovery will happen -- or whether we've even hit bottom yet -- today's current low market levels increase the likelihood that the end is in sight.

So if you can psych yourself up to put in another year or two at the office, now's a good time to do it. The payoff could prove much larger than you might expect.

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