The Unexpected Upside to Retiring Later Than Planned

What's the ideal age to retire? Of course, there is no perfect answer to this question. Many people have a goal of retiring relatively early, while fewer people will tell you "I want to work longer than I have to."

However, there can be some good reasons to work for a few extra years, particularly regarding your financial security after you leave the workforce. Here are three factors to keep in mind when deciding the best retirement age for you.

1. Social Security can be (much) higher

While some people retire with pensions, the reality is that for the majority of retirees, Social Security will be their only inflation-protected source of retirement income. So, it could be a smart idea to maximize your Social Security cash flow.

According to the latest information (April 2024), the average retired worker receives a monthly Social Security benefit of $1,915. That's just shy of $23,000 per year.

However, you might be surprised at how much of an affect the age at which you claim Social Security can have. For Americans born in 1960 or later, the full retirement age for Social Security purposes is 67 years old. But you can choose to start collecting Social Security at any point between the ages of 62 and 70.

If you claim early, your benefits will be permanently reduced. In fact, if your full retirement age is 67 and you decide to start receiving checks at 62, they will be 30% lower than they would have been if you waited. On the other hand, if you delay Social Security beyond your full retirement age, your benefit will be permanently increased by 8% for every year you wait, until as late as age 70.

Now, you don't necessarily have to wait until age 70, or even until your full retirement age. But the point is that if you can wait a couple of years (or even a few months) longer than you had planned, it can make a big difference.

2. More time to save

When you decide to keep working for a few more years than you had planned, it gives you more time to save and build up a retirement nest egg. It could be a good idea to take advantage of the additional time by increasing your 401(k) or IRA contributions.

Plus, if you're over 50, the contribution limits are higher for you than for the general population. For 2024, the standard IRA contribution limit is $7,000, but for account owners age 50 and older, it's $8,000. When it comes to 401(k) and similar plans, it's even more generous, as those 50 or older can contribute as much as $30,500 to qualified retirement plans in 2024, compared with the standard limit of $23,000.

3. More time to compound

Last, but certainly not least, waiting to retire gives your investments and savings more time to compound. Compound growth is when the interest you earn on invested or saved cash also earns interest. Of course, there's no guarantee that your stock investments will perform well in any given year, but delaying retirement for a few years gives your money additional time to grow.

The bottom line

The decision of when to retire has a lot of moving parts. It isn't just about financial considerations. Maybe you want to keep working, but your health isn't cooperating. Maybe you lose your job a few years before you'd ideally like to retire. And maybe you have big plans to travel or spend more time with family.

The point is that there's no ideal retirement age for everyone. My goal is to get you thinking about the financial benefits of waiting for a year or two longer than you originally planned, but ultimately, you need to consider all of the pros and cons of retiring at certain ages and make the best decision for you and your loved ones.