Many people dream of retirement, and those who are within a decade or so of it may even be counting down the years -- or months. There are good reasons to retire as soon as you can. For starters, the sooner you start, the younger and healthier you'll likely be, putting you in a better position to pursue travel, visit family, and more.
But there's a strong case to be made for delaying your retirement a few years. This is especially the case for anyone who doubts about whether they've saved enough for a secure retirement -- a reality for millions of Americans. Here's a look at why you might want to drag your feet before leaving your job.
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Save and invest more
According to the 2023 Retirement Confidence Survey, 33% of working respondents have less than $25,000 in savings and investments (excluding the value of a primary residence or defined benefit plan). That's far from what most of us need to retire with. Now check out the table below, which shows how much you might amass over time if you invest regularly and average 8% gains annually:
|
Growing at 8% for |
$2,000 invested annually |
$5,000 invested annually |
|---|---|---|
|
5 years |
$12,672 |
$31,680 |
|
10 years |
$31,291 |
$78,227 |
|
15 years |
$58,649 |
$146,621 |
|
20 years |
$98,846 |
$247,115 |
|
25 years |
$157,909 |
$394,772 |
Source: Calculations by author.
The table shows that you may far exceed $25,000 in five or 10 years and can amass much bigger sums if you save and invest aggressively over many years. Pick any sum in the table and look at the difference between it and the five-years-later sum. For example, if you're planning to retire in 20 years, when you might have amassed $247,115, you might retire with nearly $400,000 if you wait five more years -- some $147,657 more. Even delaying for just two or three years can make a big difference.
Of course, it's not easy to come up with extra thousands of dollars each year. You might need to take on a side gig for a while, or see which expenses you might cut back on, or find a creative solution -- such as taking in a boarder for a few years.
Enjoy employee benefits longer
Another advantage of delaying is the opportunity to take advantage of any benefits your employer provides while you're still working. The biggest example is employer-sponsored health insurance. Staying on their plan can be especially valuable before you can enroll in Medicare at age 65. Your company plan may provide affordable dental and vision coverage, too, which can save you money. The longer your employer is covering your healthcare expenses, the less time those expenses will be draining your retirement accounts.
Your employer may offer other major perks like a 401(k) match, which can further bolster your retirement savings. Even benefits like free gym access or education reimbursements are worth taking advantage of.
A shorter period during which your nest egg must support you
Consider this: If you retire at age 62 and live to 90, your nest egg will need to support you for 28 years. If you retire at 66, though, it will only need to support you for 24 years. Depending on the size of your nest egg and your expenses in retirement, that four-year delay could be the difference between a comfortable retirement and running out of money at the worst time.
It's also a move worth considering because few of us know how long we'll live. As of 2021, there were more than 89,000 people aged 100 or older in the U.S. Living that long can be a blessing, so long as you're financially secure.
Shrink inflation's bite
Then, there's inflation, which has averaged around 3.2% over the last century -- though it has sometimes been much higher than that as we've seen recently. At 3.2% annually, a nest egg of $1,000,000 would have the purchasing power of $388,695,000 in 30 years. Yikes! Five less years, and it would have the purchasing power of $454,996, a good bit more.
You can't avoid inflation (though you might consider some inflation-resistant investments), but the shorter your retirement is, the less severe its bite will be.
Collect bigger Social Security checks
Finally, there's Social Security. As you may know, you can start collecting retirement benefits at age 62. Starting early comes with a penalty so your checks will be smaller, though you'll receive more of them. Each month you wait, the checks grow bigger (with a cap at age 70), but you'll receive fewer of them.
The decision as to when to start collecting Social Security is a big one and should be made after much thought and planning. There's no single age that's best for everyone.
But postponing retirement can not only increase your Social Security benefits, but it will also mean that each cost-of-living adjustment (COLA) will be based on a bigger benefit, too, giving you bigger bumps in most years.
As you develop your retirement plan, give some thought as to whether it might make sense for you to delay your retirement by a few years.
