The decision to retire is a big one, brimming with financial and personal considerations. While many yearn for the freedom and leisure that retirement offers, a nagging question often lingers: How can I ensure my financial security during the golden years? For some, extending their working years might hold the key, potentially boosting their Social Security benefits and bolstering their savings.
But is working an extra year truly worth it? The answer, as with most financial decisions, could be determined and shaped on several individual factors. There are some potential advantages and drawbacks of delaying retirement, and you have to take them into consideration to understand if this strategy aligns with your unique situation.
Should You Delay Retirement for Bigger Social Security?
If you haven’t yet reached the age of 70, delaying your Social Security application each year results in a permanent increase in your monthly benefits. Rather than subjecting yourself to the stress of intense jobs or taking on a second job throughout your career, you might want to consider extending your working years by one more than initially planned.
For instance, if your original retirement goal was at 65, you could aim to continue working until 66. If your preferred retirement age was 67, you could work an additional year, concluding your career at 68. Postponing your application by just one year could boost your monthly benefits by up to 8% – a considerable increase when you’re in your golden years, which come with several new expenses you didn’t have in the past.
Assuming you’re earning a full-time salary, you theoretically shouldn’t be dependent on Social Security income. While unexpected expenses may arise, requiring the use of these benefits, in most cases, continuing to work allows you to delay accessing Social Security, resulting in a higher benefit during retirement.
Aside from enabling a delay in Social Security application, working an extra year could facilitate additional contributions to your retirement savings, a crucial consideration if you lack complete confidence in your accumulated sum. Even if you don’t end up augmenting your nest egg, working an extra year allows you to keep your savings intact. In summary, there’s a significant advantage.
Opting to work an extra year may not sound appealing initially. However, considering the increasing life expectancy of Americans, an additional year in the workforce could provide a retirement lasting several more decades. This way, you might enter retirement not only with a more robust nest egg but also with a larger Social Security benefit, enhancing financial comfort in your later years.
How the SSA Calculates My Retirement?
Social Security benefits are calculated based on your average lifetime earnings, considering your 35 highest earning years. So, working an extra year, especially if your income is higher than previous years, can bump up your average and consequently, your monthly benefit.
The Social Security Administration (SSA) offers a benefits planner tool that estimates your potential retirement income based on different age scenarios. Additionally, remember that any year with zero earnings is factored into the calculation, potentially lowering your overall benefit. Working an extra year can replace one of those zero years, leading to a further increase.
The extra year of income translates to additional savings, particularly if you avoid lifestyle inflation. This buffer can provide financial security throughout your retirement, allowing you to weather unexpected expenses or simply enjoy a more comfortable lifestyle.
Furthermore, delaying retirement gives your existing savings more time to grow through investments, potentially amplifying its long-term impact. While the financial benefits are enticing, working an extra year comes with trade-offs. You’ll have to delay pursuing your retirement plans, whether it’s travel, hobbies, or spending time with loved ones.
Additionally, delaying might mean missing out on potential career advancements or promotions that occur while you’re still in the workforce. Health considerations also play a role. If you have any physical limitations or health concerns, delaying retirement might not be feasible or desirable.