The Financial, Social and Health Benefits of Delaying Retirement
Some anticipate retirement years as a time for new adventures, travel, and pursuing postponed hobbies. Approximately half of working Americans retire between the ages of 61 and 65. For a growing number of seniors, delaying retirement is becoming more common. Some people delay out of financial necessity, while others delay for social or personal reasons. If you are considering delaying your retirement, there are a few possible benefits of holding off retirement even for a short time.
One financial benefit is the opportunity to earn more, for longer. In general, people are living longer and wanting to work longer. While the average life span estimated by the Center for Disease Control is 78.5 years, many people live at least another decade longer. The Social Security Administration estimates that 25 percent of people now turning 65 will live until they reach 90 years of age. Concerns about the ability to adequately finance the retirement years are frequent. Delaying retirement allows seniors to increase available retirement funds while reducing the number of years they will need those funds.
Additionally, the longer you work, the longer you can set aside funds in an IRA or 401(k) account. After the age of 50, you can invest an additional $6,500 for 401k accounts ($26,000 per year maximum) and $1,000 for IRAs ($7,000 per year maximum). Visit www.irs.gov for more information. While some 401k plans begin to impose penalties if withdrawals do not start by the age of 70½, other plans do not require withdrawals until a person retires regardless of age. Even if you do not add to your retirement accounts, the continuous compounding of interest will make the accounts more valuable the longer you delay withdrawing funds.
Delaying retirement can also increase your Social Security benefits. SSI benefits are based on the highest 35 years of employment income. The government uses a formula based on life expectancy, which is intended to pay equal lifetime benefits no matter when you begin to receive funds. While you can start taking benefits at 62, each year you delay up to age 70 increases the benefit by about 8 percent annually. Receiving a larger monthly payment will reduce the need to supplement that income from other sources.
Want your house to be free and clear during retirement? The federal government estimates that 30 percent of homeowners age 65 and older are still paying off a mortgage. Delaying retirement for a few years to pay off your home will result in a major improvement in financial stability. Paying off other significant debt while employed should also be a priority to reduce the financial burden during retirement.
If you have access to an employer health plan, maintaining health insurance can also result in better coverage and less cost. Retiring before becoming eligible for Medicare could cost you thousands of dollars. You may still qualify for subsidized insurance coverage via the Affordable Care Act (ACA), but the future and stability of the ACA is unpredictable in the current political climate. While you can begin receiving Medicare benefits at age 65, you will still pay for health care via supplemental insurance premiums, deductibles, co-pays, and services not covered by Medicare.
Finally, retirement may result in the loss of other benefits like disability insurance. It would be wise to determine what insurance coverages you will lose at retirement and whether such coverage if desired, can be duplicated at a reasonable cost.
The workplace is a major social network for many people. Over time, friendships are developed. Colleagues and their families may become an essential source of personal support and enjoyment. The workplace provides a forum where people can usually find someone with shared interests. While workplace friendships can sometimes last after retirement, this often proves more difficult when you don’t mingle with the same people daily.
When married persons are of different ages, some compromise may be necessary to get the most out of retirement. When one spouse retires before the other, there are inevitable challenges of living on a reduced income, coordinating schedules, and, for the retired spouse, keeping engaged and active while the other spouse continues to work a regular schedule. Delaying retirement so that both spouses can leave the workforce together provides time to coordinate, establish reasonable expectations, and enter retirement life with a joint plan.
A slight delay in retirement may increase the number of retirement years you will enjoy. A recent study by the National Institute on Aging showed that working for one year beyond the age of 65 resulted in an 11 percent lower risk of mortality. Researchers concluded that an extended working life could provide survival benefits.
Mentally stimulating employment can help to reduce cognitive impairment. People who are satisfied with their work and find it meaningful derive rewards from work beyond a paycheck. Work may provide challenges that help keep the mind active, a key factor that often delays the onset of dementia symptoms.
A gradual transition to retirement may reduce stress and anxiety. After working for decades, finding yourself with many unfilled hours during the day demands new routines. For people who have defined themselves primarily through their career choices, ending that career can be a difficult adjustment. Delaying full-time retirement by transitioning to part-time employment can ease the anxiety that sometimes accompanies a significant lifestyle change. Many retirees have discovered that working part-time either a few days a week or several months each year provides a rewarding compromise.
Each person must make an individual choice as to when retirement is right. Personal finances, health, family situation, current employment, and future goals all play a part. By making a reasoned decision, you will help ensure your retirement years, when they do arrive, will be rewarding and enjoyable.