Here's What Delaying Retirement for 2 Years Could Do for Your Savings

It's important to go into retirement with a nice amount of money in your IRA or 401(k). This way, you won't have to deal with financial worries later in life.

But many Americans today are nearing retirement without a lot of money in savings. According to Northwestern Mutual, the average 60-something has $112,500 socked away for retirement. And frankly, that's not much.

If we follow the guidance to take 4% annual withdrawals from savings that financial experts have long recommended, a savings balance of $112,500 results in just $4,500 of annual income. And while that's on top of Social Security, it's not a ton of money given the average recipient of those benefits today collects roughly $22,000 a year.

If you're nearing retirement and aren't so confident in your savings, then you may be inclined to stay in the workforce a bit longer. But will that really make a big difference? While you won't necessarily grow your savings all that much by delaying retirement for two years, it could be a smart move nonetheless.

Don't expect your savings to take off

Delaying retirement for a couple of years might allow you to give your savings a modest boost -- but probably not a life-changing one. Let's say you have $112,500 in savings right now and instead of retiring, you work two more years, during which time you're maxing out your IRA at $7,500 annually, which is the limit for people aged 50 and over this year.

Let's also assume that your savings are invested somewhat conservatively since you're on the cusp of retirement. The stock market's average return over the past 50 years has been 10%, as measured by the S&P 500. But your portfolio might only give you a 6% return if it's not as heavily loaded with stocks (and it generally shouldn't be when retirement is near).

With all of that in mind, delaying retirement for two years and contributing an extra $7,500 a year to your savings during that time at a 6% return would grow your balance to about $142,000. That's a nice bump. But if we apply a 4% withdrawal rate to that total, we only get about $5,700 of annual income -- still not a lot.

Delaying retirement could still make sense

Postponing retirement by two years may not do a whole lot for your savings. But it could still benefit you.

For one thing, there's value to leaving your savings untapped a couple of years longer, even if your balance doesn't grow much during that time. Also, delaying retirement could also mean delaying Social Security and scoring a higher benefit in the process, since you're rewarded financially for postponing your claim until the age of 70. And that's really important, since the monthly benefit you qualify for at the time of your filing is the benefit you're guaranteed to receive for life.

Delaying retirement by a couple of years might also allow you to pay down debts before wrapping up your career. That could leave you with fewer bills to contend with on a limited income. So if you're not thrilled with your savings and you're able to keep working a bit longer, it pays to push yourself to do so.