Could Retiring Later Make You Live Longer?
If you ask most people when they’d like to retire, they’ll tell you ‘yesterday.’
However, there’s an interesting argument to be made for delaying retirement just one more year.
According to the Employee Benefit Research Institute, the number of workers reporting that they expect to work past age 65 rose from 16 percent in 1991 to 48 percent last year.
It seems like more workers are getting the message that in order to boost their retirement security they need to work longer.
But boosting your retirement nest egg is not the only benefit to delaying retirement. In fact, I’ve got six reasons why putting off retirement just one more year is not such a bad idea.
Reason 1: You’ll Live Longer
It’s counterintuitive to think that working a stressful 9-5 job will increase your chances of living longer but that’s the truth.
The Center for Retirement Research found that delaying retirement reduced the five-year mortality rate for men in their early 60s by 32%.
Another study of half a million retired self-employed workers in France found that dementia was significantly less common among those who retired later than those who retired earlier.
Researchers hypothesize that the reason why early retirement has such negative effects on the brain is due to a decrease in mentally challenging tasks.
Reason 2: You’ll Save More
The longer you work, the more time you have to save for retirement. And, as you get older, the opportunity to set aside even more money increases.
Here’s how: If you’re under 50, your contribution limit to a 401(k) is $19,000 and $6,000 for an IRA this year. But, once you’re older than 50, you can add an extra $6,000 and $1,000 to your 401(k) and IRA contribution limits, respectively.
On top of that, the money you have saved and invested gets a chance to grow one more year without you touching it.
For example, if you have $500,000 in a retirement account today by delaying just one year, that $500,000 could grow to $535,000, assuming a 7% annual rate of return. And that’s not including any additional contributions you make to your retirement accounts during that time.
What can you do with an extra $35,000? That leads us to my next reason…
Reason 3: You’ll Have a Better Quality of Life
The reason why your quality of life will improve if you work just one more year is due to the fact that your retirement will be one year shorter.
If you estimate your yearly expenses in retirement to be $35,000, then delaying just one year lowers your required savings by that same amount. Couple that with an extra $35,000 from compound growth and you now have an extra $70,000 to spend how you please.
Reason 4: You’ll Have Bigger Social Security Checks
If you delay retirement, you boost your Social Security benefits in two ways.
First, it’s likely that you’re at the peak of your earning potential so because your Social Security check is based on the average monthly income during your 35 highest-earning years, delaying retirement could make up for the early years in your career where you earned less.
Second, depending on your age, you might be able to delay your Social Security benefits, which further increases your checks. Everyone can begin claiming as early as age 62, but you give up a significant amount versus if you waited until your full retirement age. How much exactly?
You’ll earn 124% more with a full retirement age of 67 and 132% for a full retirement age of 66. Plus, the longer you wait to claim benefits, the less of a burden you place on your personal savings later on.
Reason 5: You’ll Have Better Health Care
One more reason to delay retirement is company benefits, especially health insurance. Depending on the size of your company, your employer’s health insurance plan could be cheaper than Medicare and provide better coverage.
Here’s what you need to know: At 65, you qualify for Medicare Part A, which covers inpatient hospital services. Because Part A is free, there’s no reason why you shouldn’t enroll. At that point, you can also enroll in Medicare Part B (for doctor visits), Medicare supplemental coverage and Part D (for prescription drugs).
If your company has less than 20 employees, you need to sign up for Medicare as your primary insurance, even if your employer offers its own coverage. Failing to do so could mean you’re not covered at all. Talk to your Human Resources department to find out what’s best for you.
Reason 6: You’ll Make a Difference
A commonly cited reason for staying in the workforce is meaningful work. If there’s a project you’re working on that you enjoy, it might be fulfilling to stick around and see it through to the end. Capping off your career with a big project could be the perfect way to cruise into retirement.
Lastly, working one more year is not always going to be your call. Sometimes your boss has a different timeline for when he sees you retiring. Take what I said today with a grain of salt and decide what’s best for you and your family when the time comes to make the call .
To a richer life,
— Nilus Mattive
Editor, The Rich Life Roadmap