Can Delaying Your Retirement Actually Benefit You?

Potentially yes – in two important ways. First, the extra income you earn during those final working years can go toward savings and help sustain you in retirement. Properly invested, those dollars can continue growing long into the future. Second, you can put off drawing on benefits and retirement savings, allowing them to last longer.

Some retirement savings accounts, like 401(k)s, do have required minimum disbursements (RMDs) starting at age 72. Even if you continue working past 72, you will still be required to take the RMD. However, there is no age restriction for 401(k) contributions, so you can continue adding to your 401(k) even after you start taking RMDs.

Is Delaying Your Retirement a Good Idea?

Whether it’s in an older worker’s best interest to continue working and contributing to their retirement savings plan depends on their current savings and tax planning strategy. There is a truly diverse array of potential retirement savings and tax strategies that savers with unique situations may leverage, so there’s no one right answer to the question.

As a basic truth of savings, especially for people who are worried they haven’t saved enough during their working years to maintain their quality of life for potentially decades of retirement, saving more and waiting to draw down on those savings is generally a good thing.

Earning Delayed Retirement Credits

If you and/or your spouse aren’t sure when to start claiming your Social Security benefit, you may want to read our recent blog on the topic as well as our Social Security Report. This is an incredibly complicated subject, and regardless of what you decide, you shouldn’t make the choice on a whim without considering the advantages and disadvantages of your choice.

There is a significant percentage of older workers who benefit greatly from working a few extra years to permanently bolster their Social Security payments via Delayed Retirement Credits. This is an especially powerful tool if your work history over the past several decades has gaps, or you have concerns about being able to maintain your quality of life based on your current estimation of your SS benefit.

These Delayed Retirement Credits accrue for every month you delay collecting your Social Security retirement benefit up to the age of 70. If you were born in 1943 or later, you can get an eight percent per year rate of increase (.66 percent increase per month) for four years if you forego collecting your full benefit at age 66 or the reduced benefit earlier.

Retirement savers can see a more detailed breakdown of birth years to rate of increase on the Social Security Administration’s website.

Health and Lifestyle Benefits of Work

Whether work is actually good for you depends largely on how much you enjoy your job, your outlook on the value of staying busy and your physical activity level. If your job is sedentary, stressful and it makes you unhappy, this “benefit” might not apply to you at all.

However, some potential risks of retirement are isolation and a steep drop in regular physical activity, both of which can have negative effects on retirees mentally and physically. If work is keeping you active, engaged and stimulated, it may have a net positive impact on your overall health and wellness.

Can the Mental Stimulation of Work Slow Cognitive Decline?

There are studies suggesting “cognitively stimulating work and activities” can stave off cognitive decline and some types of dementia. People are unique in all respects, including brain health, hereditary risks, mental acuity and cognitive function, but the common consensus among medical professionals seems to be that mental stimulation and physical activity is a net benefit for cognitive function.

Work is far from the only activity that can help in this regard, and mental stimulation alone is not a miracle cure for cognitive decline. Seniors who have fully retired can engage in many non-employment-related mentally stimulating activities, such as reading, playing games or learning a new skill to lower their risk of developing cognitive impairment or dementia. Still, if you are worried about cognitive function, delaying your retirement may be one way to combat it.

Staying healthy both mentally and physically may also reduce your need to spend your retirement savings on health care. The longer you can put off things like assisted living, memory care and expensive medical interventions, the better off you will be financially. 

Should You Delay Retirement?

Older workers in Phoenix who are looking at their retirement savings options may benefit from the assistance of Fullerton Financial Planning. One of our retirement planners would be happy to discuss the potential advantages and disadvantages of delaying retirement based on your unique financial circumstances and goals. Call us at (623) 974-0300 to speak with a financial advisor today.