Retirement is the dream that helps many of us get up and go to work once we have reached a certain age. It is like the promised land of relaxation free of an alarm and a schedule, but this urgency can lead us to make mistakes and rush our plans only to later regret it and for it to be too late to backpedal, especially if we have already claimed Social Security benefits.
This is why today we have talked to Chris Urban, a CFP and retirement planner, plus the founder and president of Discovery Wealth Planning. He has advised us in the best ways to increase our benefits in the long run by delaying our retirement.
Increased Social Security Benefits
Some believe their pension or other income sources will be sufficient for an early retirement; however, if you are relying on Social Security and retire before becoming eligible “Your income would essentially go to zero if you’re not working.” As Urban explains. So, before making any decisions, it’s crucial to assess whether it’s truly viable. “So obviously the benefits of delaying are going to be even greater if you are not at Social Security age.”
The longer you delay taking your benefits past age 65, the higher your monthly payments will be. According to the Social Security Administration, if you begin receiving benefits at age 62, you will receive only 70% of the maximum benefit. At age 70, you would receive 127%.
The Power of Compound Interest
Since after retiring you do not have an income, you will probably need to start drawing from your alternative sources of income like investments to fund your lifestyle, but the longer you leave investments the more profitable they are thanks to compound interest. Delaying as much as possible will give you more money to work with.
Protection Against Market Downturns
While worrying about things one cannot control is pointless, Urban does point out that “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.” In this case, staying employed would be good for you “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
Since the years just before retirement are likely to be one’s highest earning years, Urban said, “The opportunity to contribute to workplace employer retirement plans with catch-up contributions is significant.” Especially if you’re receiving employer matching funds as well.
Get Ahead of Paying Off a Mortgage or Debt
Retiring with as little debt as possible is the goal, so before taking the plunge, pay off as much as you can to wipe your slate clean. And the ideal way to do this is to delay retirement. “All of these things are helped by still having some kind of income,” Urban said.
Healthcare
Waiting until 65, when you will become eligible for Medicare will at least ensure a lot lower healthcare cost. Once your employer is not subsidizing part of your insurance the costs will skyrocket until you can start the state sponsored program. As Urban defends “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
If you are just retiring because you can without any sort of plan, the likelihood of it going wrong is high. As 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.”
Mental Health Benefits
Going off on the previous point, if you don’t have a plan, you mental health may suffer greatly, not just your finances. As Urban suggests “I would prioritize your interest from a mental health and wellness perspective when thinking about [retirement]. 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.”
