When Delaying Retirement Makes Sense
After several decades in the workforce, the years leading up to your retirement age is filled with a lot of planning and introspection. For some people, retirement can’t come soon enough as they look forward to escaping the daily grind and living a more laid back life. For others, retirement comes with lots of apprehensions that could stem from not being fully prepared financially, not knowing what to do with their time, or a general fear of the unknown.
In any case, before you make the retirement move, you should ensure all your financial (and non-financial) ducks are lined up in a row.
If you are unsure about your state of preparedness, putting off retirement for a couple more years will make your golden years more pleasant when you finally retire. A few extra years at work will give you time to save up more money and solidify your retirement plans.
Let’s Look at Some Reasons Why Delaying Retirement Makes Perfect Sense:
You love what you do
For many people, working a job goes beyond earning an income. They are fully engaged and perform their tasks with passion. With a sense of accomplishment and fulfillment that naturally derives from doing work that is meaningful and valuable.
If you love your job and enjoy the company of coworkers, and can’t bear the thought of being separated from your daily labor, then you may want to put off retirement for as long as you can.
Loving your job has other benefits too. People who love what they do tend to be happier and less stressed than those who live for the weekend. This job satisfaction will spill over into other areas of your life and keep you mentally and physically healthier for longer.
Delaying your retirement and working for longer at something you love to do makes a lot of sense, even if you have saved up enough to retire comfortably. You keep yourself busy, active, relevant, and connected to a community of your work colleagues. These all serve to maintain an overall sense of satisfaction with your life.
Need more time to grow your asset base
So, your retirement is approaching with the speed of a runaway train, but you are as close to your retirement savings goal as California is to Maine. You are not alone. For many Americans, saving can be difficult. And a lot of people have little or nothing set aside as retirement inexorably draws close.
While social security may replace about 40% of your income before retirement, you’ll probably need about twice that to maintain a comfortable lifestyle in retirement. That is why it’s critical you carefully examine your retirement savings before giving retirement a shot.
Exiting your career before you are ready simply because you’ve hit retirement age is a recipe for disaster.
However, your 401(k) or IRA balance doesn’t tell the full story. What you should be concerned with is what kind of income that balance can provide for you – using the 4% rule, which states that you can take 4% annually from your retirement saving without depleting it for a good 30 years.
So if you have saved up $500,000 in your retirement accounts, which looks good anyway, taking out 4% will only give you an income of $20,000 every year. When you add the social security benefits, will the total be able to cover your projected expenses annually?. If the answer is in the negative, then you should delay retirement to shore up your savings.
At age 50 and above, you can invest additional amounts in your 401(k) and your (IRA) Individual Retirement Account. With these extra “catch-up” contributions, your maximum contributions to 401(k) increase by $6,000 and your maximum IRA contribution by $1,000. That means you can invest a total of $30,500 tax-free – up to $24,000 in your 401(k) and $6,500 in your IRA.
Working and saving for longer also means that compound interest gets to work on your behalf. Say you have saved up $200,000 and earn at 7%, in another year you’ll have gained an extra $14,000 if you postponed your retirement and waited a year before drawing down on your savings. This excludes whatever contribution you must have made in that year. If you delay retirement for another five years, your $200,000 would have grown to over $300,000.
Your debt is still high
If carrying a massive debt is hard enough to deal with when you work full time, then imagine paying debts on a smaller fixed income. Retiring with a colossal debt will destroy your budget and adversely affect your lifestyle. It’s even worse if the debt is mostly credit card debt. The high-interest charges will ensure your debt burden goes up rather than reduce.
You should delay your retirement if you still have lots of high-interest debts to pay. Working for longer and prioritizing paying off the debts will make it possible for you to retire debt-free or with little, manageable debt. Sacrifice some of your discretionary spendings if you have to and consider taking on extra jobs to attack your debts in the limited time you have.
While working an extra job or a side-hustle may be tough, it has an unexpected benefit. You can continue working the additional part-time employment to supplement your income when you finally retire from your primary job. Aside from helping you make some extra cash for a couple of years to support your pension, continuing to work will help you transition gradually to full retirement. It can be disconcerting to go from working full-time to not having a job at all.
You don’t know what you would do during retirement
Apart from debt and low savings, another thing that scares most people about retiring is the big question of what to do with themselves. They are basically hooked to their jobs and career that everything else takes second base. As they get closer to retirement age, they must figure out how to fill their time with satisfying and meaningful activities.
When you spend most of your adult life on a job, you may become worried about how to fill those idle hours. This worry may be troubling enough to make you reconsider retiring. If you haven’t planned out how you intend to spend your time in retirement, then you’re better off putting it off.
Retirement is wonderful if you have two essentials – much to live on and much to live for. – Author Unknown
Take the extra years to find activities you love that will keep you going in your golden years. You may choose to find a way to contribute your considerable knowledge and skills to society. You may decide to get another job in a totally different field, become a consultant, or go into business for yourself. Check out new travel destinations, join social clubs that share similar interests or a hobby that will keep your mind active.
Take some time off work to test drive your new-found retirement activities. If you enjoy them more than the time you spend at work, then you are good to go.
Your work, aside from providing you with income, also provides mental stimulation and social interactions. Leaving employment gives you many years with thousands of hours to fill without all the activities around your work. And if you don’t become clear about how you’ll spend all that time, you could become bored, depressed or even physically ill.
You’re worried about maintaining your current lifestyle
Same as saving enough for retirement, keeping your current lifestyle boils down to your financial preparedness for retirement. If you are too close to retirement to save enough for that lifestyle, then you should consider delaying retirement. Also, depending on your kind of lifestyle, you may need more time to put things in place to sustain the way you live currently when you’re retired.
You may need to work with a financial planner to determine what you’ll require in retirement to live the way you live right now.
The key is to ask pertinent questions: What does it take to keep up with the annual exotic vacations, or living in a 4000 square foot home?
When you understand what it will require to continue living that way, you can then see how to get to that level of income in retirement through a combination of savings and investment strategies.
Of course, the best time to plan for retirement is when you start working. But if you desire to maintain your lifestyle when you retire, and you observed to your dismay that your projected income in retirement just won’t cut it, the next best thing is to delay retirement for as long as it takes for you to save up more and arrange for consistent income levels in retirement that will be close to what you earn now.
You may have been planning on retiring at a particular age, but now that it’s right around the corner, you find yourself unsure. And full of questions: Is the money in my savings account enough? Will I be able to live as I did before retirement? Will I have active pursuits that will keep me engaged and happy?
If the answers to these questions are mostly in the negative, then you should reconsider your decision to retire. Even an extra year in the workforce may be all you need to give yourself the golden years you genuinely deserve.