By the time you reach your mid-fifties you might already be looking ahead to that wonderful day when you can retire, even if it’s a decade away.
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It’s natural to feel a sense of urgency when you’ve been working a long time and, by the time you hit 60, you might barely be able to contain yourself from jumping ship at 62 — the earliest age you can take Social Security.
However, according to Chris Urban — a CFP and retirement planner, plus the founder and president of Discovery Wealth Planning — you might want to reconsider. Delaying retirement by even just one year can bring numerous financial benefits that make that extra year very worthwhile.
Increased Social Security Benefits
Some people think their pension or other income will be enough to start an earlier retirement; however, if Social Security is what you’re banking on and you retire before you are eligible, Urban said, “Your income would essentially go to zero if you’re not working.”
Before you jump, you need to ask whether it’s really feasible, Urban said. “So obviously the benefits of delaying are going to be even greater if you are not at Social Security age,” he said.
Each year you delay taking your benefits after age 65, the more you’ll get. According to the Social Security Administration, if you start taking it at age 62, you would get just 70% of the maximum benefit. At 70, you would get 127%.
The maximum benefit for anyone retiring at age 67 in 2024 is $3,822 per month. If you retired at age 62 this year, your maximum benefit would be $2,710; if you retired at 70, you could receive a maximum $4,873.
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The Power of Compound Interest
Earlier retirement means that you’ll likely have to start drawing from your investments to fund your lifestyle, Urban said. Thus, the longer you keep funds invested, the more you can take advantage of compound interest — i.e., reinvesting the interest you earn on any accounts, depending on how and where your funds are invested.
Protection Against Market Downturns
While Urban doesn’t put too much store into worrying about things like market downturns, since a lot of that is out of a person’s control, he did point out, “If some sort of market meltdown is occurring, whether it’s something like what happened during Covid or whatnot, and you retire into that situation and are also starting to draw down your assets in that kind of a down market, the pressure on your investment portfolio is going to be significant.”
Thus, staying employed or not drawing on investment funds for another year could be quite beneficial. He added, “If you were in that situation, you may consider working more just to give your investment portfolio time to recover.”
Benefit From Catch-Up Contributions and Employer Matching
Additionally, since the years closest to retirement are likely to be your highest earning years, Urban said, “The opportunity to contribute to workplace employer retirement plans with catch-up contributions is significant.”
If you’re receiving employer matching funds as well, that’s another year of what is essentially “free” money.
Plus, if you’re contributing to a health savings account (HSA), another year means more tax-protected accrual.
Get Ahead of Paying Off a Mortgage or Debt
Another area where a year will make a difference is if you are paying on any kind of debt, including a mortgage, since ideally you would draw on employment income and not Social Security or retirement income to pay that down.
“All of these things are helped by still having some kind of income,” Urban said.
Healthcare
If you’re not 65 yet, you won’t be eligible for Medicare, which brings your healthcare costs down significantly and gives you the freedom to no longer depend on employer-sponsored healthcare. So waiting behooves you.
While the Affordable Care Act does offer tax credits, that is income dependent, Urban said, and tends to favor people on lower incomes.
“If you’re 64 and it was a toss-up on if you should work another year and your finances were borderline, then yes, wait until 65 to retire when you can get Medicare,” he said. “That removes a lot of healthcare costs and potential risks for a year.”
More Time To Plan
The benefits of delaying retirement by a year aren’t just financial.
Urban explained: “Research suggests that people that have planned and thought about what they’re going to be doing day to day in retirement tend to have a lot better outcomes than those who just decide they don’t want to work but have no idea what they’re going to do.”
So, he said, if you haven’t thought about your retirement plans, that may be another reason to work another year: You can start thinking about that so you may have a more successful outcome.
Mental Health Benefits
Urban suggested that equally as important as your finances is your mental health.
“I would prioritize your interest from a mental health and wellness perspective when thinking about [retirement],” he said. “Make sure you’re [retiring] for the right reasons from a non-financial perspective, because a lot of people get benefits from the social aspect or even if it’s part-time work and things like that.”
You also don’t have to fully retire, since for many people jobs can bring multiple kinds of fulfillment.
“Maybe there’s an opportunity to do even part-time work or scale back and that kind of thing,” Urban said, “where some income is better than none and then you also get the benefit of the social aspect of that.”
While only you and your financial planner can ultimately decide when is the best time for you to retire, with health and well-being in mind, consider the many benefits of waiting just one more year.
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This article originally appeared on GOBankingRates.com: Retirement: The Stunning Financial Benefits of Working Just One Year Longer
