When you're in your mid-50s, you may already be looking forward to that great day when you can retire, even if it's 10 years away.
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It's natural to feel a sense of crisis when you've been working for a long time, but by the time you reach age 60, at age 62, the earliest age you can receive Social Security, you may be able to barely contain the urge to take the plunge. I don't know.
But you might want to think again, according to Chris Urban, CFP and retirement planner, and founder and president of Discovery Wealth Planning. If he delays retirement by even one year, there are many financial benefits that will make his extra year very valuable.
Increase in social security benefits
Some people think that having a pension or other income is enough to start early retirement. But if you rely on Social Security and retire before you're eligible, “your income essentially goes to zero if you're not working,” Urban said.
Before you jump, Urban says you need to think about whether it's really possible. “So it's clear that if you're under Social Security age, the benefits of deferral are even greater,” he said.
The more years you delay taking your benefits after age 65, the more you'll receive. According to the Social Security Administration, if you start receiving benefits at age 62, you will only receive 70% of your maximum benefit. At age 70, it increases to 127%.
The maximum benefit for someone retiring in 2024 at age 67 is $3,822 per month. If he retires this year at age 62, his maximum benefit will be $2,710. If you retire at age 70, you can receive up to $4,873.
Find out: Here's how much you need to save to retire in your state
power of compound interest
Urban says retiring early means you'll likely have to start drawing down your investments to fund your lifestyle. Therefore, the longer you keep your money invested, the more you can take advantage of compound interest. This means you can reinvest the interest you earn in any account, depending on how and where you invest your funds.
Protection against market downturns
Urban said he doesn't worry too much about things like market downturns, since much of it is outside of human control. If you retire and end up in that situation, due to something like COVID-19, and you start drawing down assets in such a down market, there's going to be a lot of pressure on your investment portfolio. ”
Therefore, remaining employed or not using investment funds for another year can be very beneficial. He added: “If you find yourself in that situation, you might 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 the years of highest income, Urban said, “The opportunity to make catch-up contributions to your workplace employer's retirement plan is important.”
If you also receive employer matching funds, you essentially receive an extra year of “free” money.
Additionally, if you're contributing to a Health Savings Account (HSA), you'll have an extra year of tax-sheltered accruals.
Prepare before paying off your mortgage or debt
Another area where a year can make a difference is if you're paying off any debt, including a mortgage. Because ideally, you would be using your salary income to pay it back, rather than Social Security or retirement benefits.
“All of this is helped by still having some kind of income,” Urban said.
health care
If you are not yet 65 years old, you are not eligible for Medicare, which significantly reduces your medical costs and gives you the freedom to not rely on employer-provided health care. So please wait.
The Affordable Care Act provides tax credits, but they are income dependent and tend to favor low-income people, Urban said.
“If you're 64 and wondering if you should work another year and you're on the edge of your finances, then yes, you can wait to retire until you're 65, when you're eligible for Medicare,” he says. “This saves a lot of medical costs and potential risks over the course of a year.”
more time to plan
The benefits of delaying retirement by a year are not just financial.
Mr. Urban explained: “Research shows that people who plan and think about what they're going to do every day in retirement tend to have much better outcomes than people who don't think about it and just don't want to work. They What are you planning to do?”
So if you haven't thought about your retirement plans yet, that might be another reason to work another year, he said. You can start thinking about it because it might give you a more successful outcome.
mental health benefits
Urban suggested mental health is just as important as finances.
“As we consider what's next, we want to prioritize your interests from a mental health and wellness standpoint.” [retirement],” he said. “Make sure you are [retiring] There are good reasons for this from a non-economic point of view, as many people benefit from the social aspects and even part-time work. ”
And for many people, work provides different kinds of fulfillment, so you don't have to retire completely.
“Maybe there's an opportunity to work part-time or downsize. It's better to have no income than no income, and you might also benefit from the social aspects of it. ,” Urban said.
While ultimately only you and your financial planner can decide the best time to retire with your health and well-being in mind, consider the many benefits of waiting an extra year.
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This article originally appeared on GOBankingRates.com: Retirement: The surprising financial benefits of working just one year longer
