Retirement is often seen as the ultimate reward after years of hard work—a time to relax without the constraints of an alarm clock or a set schedule. However, rushing into retirement and claiming Social Security benefits prematurely can lead to financial regrets.
To help you make the most informed decision, we spoke with Chris Urban, a Certified Financial Planner (CFP) and retirement planner, and the founder and president of Discovery Wealth Planning. He shared insights on the advantages of delaying retirement to maximize your benefits in the long run.
Table of Contents
Increased Social Security Benefits
One of the key reasons to delay retirement is the increase in Social Security benefits. Many people assume their pension or other income sources will suffice for an early retirement. However, Urban explains, “Your income would essentially go to zero if you’re not working.” Therefore, assessing the viability of early retirement is crucial. Delaying Social Security benefits can significantly enhance your monthly payments. According to the Social Security Administration, starting benefits at age 62 results in receiving only 70% of the maximum benefit, while waiting until age 70 increases this to 127%.
Compound Interest
When you retire, you may need to draw from investments to fund your lifestyle. The longer you leave your investments untouched, the more they can grow thanks to compound interest. Urban highlights that delaying retirement allows your investments to accumulate more, providing a larger nest egg to draw from in the future.
Market Downturns
Urban advises against worrying about uncontrollable market fluctuations but acknowledges the risk of retiring during a market downturn. “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.” Continuing to work during such times can give your investment portfolio time to recover.
Employer Matching
As you approach retirement, your earnings are likely at their peak. Urban notes, “The opportunity to contribute to workplace employer retirement plans with catch-up contributions is significant,” especially with employer matching funds. This can boost your retirement savings substantially.
Mortgage or Debt
Entering retirement with minimal debt is ideal. Urban recommends using the additional working years to pay off as much debt as possible. “All of these things are helped by still having some kind of income,” he says. This strategy can provide a cleaner financial slate upon retiring.
Healthcare
Healthcare costs can be a significant burden if you retire before becoming eligible for Medicare at age 65. Urban suggests, “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. That removes a lot of healthcare costs and potential risks for a year.”
More Time To Plan
Urban emphasizes the importance of having a solid plan for retirement. “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.”
Mental Health Benefits
Without a plan, your mental health could suffer in retirement. Urban advises prioritizing your interests from a mental health and wellness perspective. “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. Maybe there’s an opportunity to do even part-time work or scale back and that kind of thing, where some income is better than none and then you also get the benefit of the social aspect of that.”
Delaying retirement can offer numerous financial and mental health benefits. From increased Social Security benefits and compound interest to protection against market downturns and reduced healthcare costs, the advantages are significant. Additionally, taking extra time to plan your retirement activities and manage your mental well-being can lead to a more fulfilling and secure retirement.
FAQs
Why should I delay taking Social Security benefits?
Delaying benefits past age 65 increases your monthly payments, with a significant boost at age 70.
What is the benefit of compound interest in retirement planning?
The longer you leave investments untouched, the more they grow due to compound interest, providing a larger nest egg.
How can delaying retirement protect against market downturns?
Continuing to work during a market downturn allows your investment portfolio time to recover before you start drawing from it.
What are catch-up contributions?
These are additional contributions to retirement plans that individuals aged 50 and above can make, often with employer matching funds.
How does delaying retirement impact healthcare costs?
Waiting until age 65 to retire makes you eligible for Medicare, reducing healthcare costs compared to private insurance.
