As inflation persists, retirees face a challenging decision regarding retirement. The decision to retire or not is subjective, as everyone perceives retirement differently, and there is no one-size-fits-all solution.
Most people either put off saving for retirement until it’s so late that they have to play catch up. Others simply set aside as much as they can with no further planning. But the reality is, without considering possible pitfalls and opportunities along the road to retirement, you can find yourself facing some major setbacks. This is why it’s essential to weigh these factors carefully before deciding whether to postpone your retirement.
To find happiness in post-work life, most retirees need both financial stability and purpose. In fact, according to the Transamerica Center for Retirement Studies, 97% of retirees with a strong sense of purpose are happy in retirement. But CNBC reported in 2022 that many Americans had to delay their retirement to keep up with the rising cost of living.
So should you delay your retirement? Here’s what you need to know.
Pros of Delaying Retirement
- Higher Social Security Benefits
Social Security benefits can be claimed as early as age 62. However, some individuals choose to wait until age 70 to maximize their benefits. Delaying your claim can lead to larger monthly payouts. That is if you plan to work until you reach the maximum age for benefits. If you need money immediately or are uncertain about your lifespan, filing an early claim might be the best option.
The longer you wait to start receiving benefits, the higher your monthly payments will be. This can help you stretch your retirement savings further. It’s worth noting that the Social Security system is designed to ensure that your benefits remain consistent throughout your retirement. As helpful as Social Security can be, you’ll need to rely on more than Social Security for your retirement income.
TIP: When you reach age 70, your monthly benefit stops increasing even if you continue to delay taking benefits. If you decide to delay your retirement, be sure to sign up for Medicare at age 65. In some circumstances, medical insurance costs more if you delay applying for it.
- Social Security Tax Benefits
While Social Security becomes taxable once your total income exceeds the annual limit, even at its highest inclusion in taxable income, only 85% of the benefit is taxed. This means that if you delay Social Security while spending down pretax retirement accounts throughout your 60s, you’ll likely be reducing your future required minimum distributions (RMDs), which are 100% taxable, and replacing that income in your 70s and beyond with lower-taxed Social Security benefits.
- Starting a New Career
Delaying retirement can give you more time to pursue hobbies or other interests that you’re passionate about. If you can continue working in a job you enjoy, you may find that delaying retirement allows you to strike a better balance between work and leisure time.
It’s important to do so with a realistic understanding of the potential risks and benefits. Which is why it’s wise to discuss your retirement plans with a financial advisor. They can help you evaluate your financial situation and provide advice on making the transition to a new career. Whether it be a consulting side-kick, or even a full-time golf attendant, with careful planning, starting a new career can be a rewarding experience.
- Improved Health
Research has shown that staying active and engaged in work can have positive effects on an individual’s physical and mental health. This is especially true for those who choose to extend their working life through part-time work. By continuing to work, individuals may find a sense of purpose and fulfillment that can be difficult to imitate in retirement. This can help ward off feelings of boredom, loneliness, and isolation, which are common in retirement and can have negative impacts on one’s mental health.
Staying active through work can lead to various physical health benefits, such as improved cardiovascular health, circulation, and musculoskeletal health. Additionally, physical work-related activities such as standing or walking can reduce the risk of sedentary behavior, which has been linked to a range of health problems.
- More Time to Save
The most obvious benefit is that retiring late gives you more time to stuff money into your retirement fund while reducing the number of years you’ll have to make it last. Furthermore, waiting several years – or decades – to leave the workforce can grow your investment accounts.
Starting at age 50, the IRS allows workers to sock away extra income in tax-advantaged retirement accounts through catch-up contributions.
In 2023, that’s an additional $7,500 on top of the standard $20,500 maximum 401(k) annual contribution. Just a few extra years of that can add a whole lot of cushion to your nest egg.
Cons of Delaying Retirement
- Physical Limitation
One of the most significant potential drawbacks of delaying retirement is a person’s physical limitations. As individuals age, they may experience a decline in physical functioning. This can make it more difficult to perform physically demanding tasks or to work for extended periods without breaks.
For example, individuals in occupations that require heavy lifting or prolonged standing may find that their physical limitations make it hard to continue working past their ideal retirement age. Additionally, individuals who have experienced injuries or illnesses that affect their physical functioning may find that delaying retirement is not a viable option for them.
- Work-related Stress
While continuing to work can have positive effects on one’s health, work-related stress can have negative impacts on an individual’s mental health and well-being. This is particularly true for individuals who are feeling burnt out or overwhelmed at work. Work-related stress can lead to a range of mental health concerns, including anxiety, depression, and distress.
It’s essential for individuals to prioritize their mental health and well-being when making the decision to delay retirement. If work-related stress is taking a toll on your life, it may be worth reviewing if delaying retirement is the best choice for you.
- Reduced Quality of Life
Delaying retirement can affect one’s quality of life by limiting options, goals, and spending time with loved ones. As you get older, you may find it more difficult to engage in activities you enjoy. Delaying retirement may mean putting off travel plans, or any other activity/lifestyle you wish for in retirement.
As individuals age, they may experience physical limitations that make it more difficult to enjoy certain activities. This can result in missed opportunities and a decreased sense of fulfillment.
It’s crucial for soon-to-be retirees to consider the impact on their personal life and relationships when making the decision to delay retirement. While financial security and improved health may be important factors, retirees should also consider the potential effects on their relationships. With careful consideration and planning, it’s possible to balance the benefits of delaying retirement with other aspects of one’s quality of life.
Final Thoughts
It’s important to remember that everyone’s roadmap to retirement looks different. What might be right for you may be different for someone else. At CKS Summit Group our retirement income planners can help you create a personalized plan that aligns with your goals. By taking account of your financial situation and your goals, you can help secure a successful and fulfilling retirement.
If you’re interested in discovering more about our retirement income planning services, contact us here today.
