• Maureen Decker

The Value in Delaying Retirement

It is no secret that there are numerous benefits from delaying your retirement. A few extra years of work could provide an individual with a higher social security income and a larger savings balance. According to Fox Business, the average worker could increase their annual retirement income by as much as $9,500 by delaying retirement.

Individuals are allowed to claim their social security benefits starting at age 62. However, you cannot qualify for your full benefit until you reach your Full Retirement Age. Full Retirement Age is determined by the year you were born. It is 66 for those born before 1954, 67 for those born in the 1960 and later and 66 + months in between. If you claim before you reach your Full Retirement Age, your benefit is reduced by early filing penalties, so the earlier you claim, the lower your benefit.

Delaying retirement also allows the value of your savings account to continually increase (instead of decrease). You can live off your paycheck longer instead of withdrawing cash from your savings. Those extra few years of additional income (often at peak salary) can make a huge difference, especially considering individuals become eligible for catch-up contributions in 401(k)s, IRAs, and HSAs starting at age 50.

For example, according to the Social Security Quick Calculator, a 60-year-old earning $56,680 would earn $1,126 in benefits when they are eligible to claim benefits at age 62 and one month. However, if this individual waited until they were 67 to begin claiming benefits, their monthly benefit would increase to $1,710. Delaying benefits results in an extra $7,008 a year.

If this same worker continues to work for another five years, they will contribute significantly more to their retirement accounts. If this worker contributes 15% and gets a 3% match from their employer, that’s an additional annual savings of approximately $10,000 a year (and $50,000 in five years). At an average rate of 5%, your additional contributions should grow to about $58,000 in five years. This would result in $2,320 of retirement income annually (based on a 4% withdrawal rate), in addition to the $7,008 in annual benefits from delaying social security. These benefits will increase for individuals with larger incomes.

It is important to know how to estimate the value of postponing retirement in advance. You can create an account at “my Social Security” (www.ssa.gov/myaccount/) to view what your benefit would be for any potential age in which you may retire. Visualizing the monetary benefits of delaying retirement may aid in your decision. In addition, working a few extra years allows you to take advantage of your employer’s insurance policy. This could be valuable, especially considering out-of-pocket healthcare costs can be high.





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