In some cases, a year can make a big difference. Looking back on 2019. 2020 was certainly different (to say the least). But some things haven’t changed much over the years. Deciding when to retire is a big decision. It’s easy to put it off for a year and he put it off for another year.
Will those years really change the big picture of things? The answer depends a lot on your point of view, but the answer is yes. Our choice regarding when to retire, even if he just waits a year, affects both our financial and mental health.
Current and future value of your decisions
When deciding when to retire, you need to think about both the present and the future. What are the benefits now of delaying retirement? What does it mean for your future?
Example: If I retired early, would I still have room for the future? If I retired late, would I be more financially secure without regretting an extra year of work? Speaking of which, will something happen (illness or the birth of a grandchild) that makes the decision to retire early more meaningful?
Let’s see what difference delaying retirement for a year really makes. What if we wait five more years?
Time and money are the two most talked about factors in deciding when to retire. And we’ll talk about them below.
However, there are other considerations (emotions) that can push you into early retirement or prevent you from living the life you really want.
- Some people have a hard time resisting the temptation to make more money and save more. These people are probably too thrifty.
- Some of you may be genuinely terrified of using up your retirement savings.
- Quite a few people quit to get away from a job they hate, but what really matters is to quit and live a life they love.
Whatever your emotional factors are, be sure to consider them when choosing your retirement date.
Below, let’s calculate the amount to delay retirement by one year.
Your time is the most precious resource. And let’s be honest, how we spend our time becomes more and more important as we age. I have very little time left in my life, and I want to make the most of it.
Perhaps time should be considered an important factor in deciding when to retire. For someone who values his time, what does it mean for him to delay retirement for over a year?
If you’re happy, fulfilled, and find meaning in your work, you probably don’t need to rush to retire. However, if you have other ways to spend your time that you deem more important, you may want to prioritize retiring early.
Ashley Willans, an assistant professor at Harvard Business School, writes in her book on how to think and value one’s scarcest resource: time. Make Time Smarter: How to Get Back Time and Live a Happier Life.
She became interested in the value of time after observing people not spend money for optimal well-being. (Get tips on how to spend money for happiness.)
Here’s what she said on the podcast NewRetirement: time too. And we became very interested in trying to understand the trade-offs that occur between time and money. “
She advocates taking her time seriously. “So I often hear from a lot of MBA’s and a lot of the executives that I talk to that, ‘Once I get this title and hit this number in the bank, then I can focus on what I want to do. I want to use my time, but I’m not going to get really serious until I hit this title or put this amount in the bank.”
How do you value your time? How can that assessment help you decide when to retire?
- Cost of delaying retirement by one year: It cannot be calculated, but it can be very costly. Time is precious.
If you’re receiving a pension, waiting just one year can make a big difference in whether or not you can earn an income. For most pensioners, when they will be able to earn an income is the most important factor in deciding when to retire.
This could be a multi-million dollar decision. So really, the best advice is not to retire before you are eligible for your full pension.
(Another big decision is whether to take your annuity as a lump sum or as a payment.)
- Cost of delaying retirement by one year: there may be many
There are some considerations about delaying retirement and how it will affect your Social Security retirement income.
First, you can retire from your job and delay the start of Social Security. And if this is your decision, when After retirement, you may not have to worry so much financially.
However, if you need to enroll in Social Security soon after you retire and you are not yet 70, you may be hit financially. Depending on your Social Security income and longevity, the difference between starting Social Security at age 62 and starting at age 70 could be a decision of $500,000 in lifetime value.
But what difference does it make to just delay the start of Social Security by one year?
High-income earners: Suppose you are a relatively high-income earner and expect to receive the maximum Social Security benefits available. If this is true, her monthly benefits at full retirement age (most of us are her 66) would be about $3,100. If you defer for one year, your monthly benefit will increase to approximately $3,300. That’s the difference between $200 a month and $2,400 a year. The boost will add nearly $50,000 after 20 years of retirement.
Average earner: What about more average people? Would delaying it by a year make a big difference? The average social security benefit at full retirement age is $1,500 for him. If he delays the start by two years, his monthly income will increase by another $200. That’s a difference of $2,400 a year, and an additional $48,000 after 20 years of retirement.
So delaying retirement by a year can actually make a big difference to your Social Security income. Because this is a decision that will affect you for the rest of your life, not just for a year.
Model different Social Security start ages in the NewRetirement Planner.
- Cost of delaying retirement by one year: $48,000
Retirement and retirement planning depend on many interrelated factors. That is, income, expenditure, amount saved, and amount withdrawn from savings are all affected regardless of whether there is labor income.
Here are some estimates of what the effect on your work income would be if you delayed your retirement by one year:
Let’s start with the obvious. Delaying retirement gives you an additional year of income. And this is probably no small change he’s over $50,000, or even more.
Retiring early simply means that you haven’t put that money in the bank or can’t use it to live on (and you’ll have to pay for it somehow).
- Cost of delaying retirement by one year: Over $50,000.
If you have working income, you can delay withdrawals to cover your expenses. And this delay allows funds to continue to be invested and continue to grow. Therefore, the value of a one-year delay could be equal to the amount you take out of your savings plus the profit you make on that money.
Many people are withdrawing about 4% of their annual savings (check out 18 of the best withdrawal and retirement income strategies), and the average retirement savings for a 60-something is about $200,000.
- Benefits of delaying retirement by one year: So, considering these averages, if you delay your withdrawal for a year, you’re getting $8,000 plus any amount of money. (Assuming a 6% return, he could be worth $1,500 over 20 years.)
Depending on your personal circumstances, you may spend more (or less) when you are working than when you are retired.
Think about your commute costs, eating out lunches, fancy coffee on the way to work, and your wardrobe. If we get out of the pandemic anyway. Also, if you choose to retire, you should carefully consider whether your expenses will increase or decrease. Many people feel that their expenses will increase after retirement. Consider the best way to budget for retirement. Or create a detailed future budget with the NewRetirement Planner.
However, the biggest potential factor in spending and timing of retirement may be where you live. This can be a pretty big financial factor if you plan to relocate after retirement. Buying and selling a home is a big decision, and the timing of those transactions can make a big difference in value. Relocation is another factor that can be modeled in the NewRetirement Planner.
Spending cannot be easily generalized. Delaying his retirement by a year could result in a higher or lower burn rate. So let’s call it even. (However, if you’re considering when to retire, I highly recommend making a detailed personal plan so you can feel confident in your decision.)
- Costs or expenses of delaying retirement by one year: Not sure, but a lot depends on your plans.
First, do you know how much you need to save to get the retirement you want? (Use the NewRetirement Planner to get a detailed and reliable estimate.) If you think you could get there in a year or more, keep working.
But there may be times when you need extra cushion or want to leave a greater financial legacy. Working longer hours can contribute significantly to your savings.
Any extra savings, especially if you can catch up with them, can give you an extra year of working life that you can put to good use. Beginning in 2023, you will be allowed to save up to $37,500 annually in tax-advanced accounts after age 55. (And if those funds weren’t needed for another 15 years, $37,500 could grow to $85,000 or more for him if compounded at a rate of return of 6%. will be broken.)
- Cost of delaying retirement by one year: $85,000
Many workplaces offer benefits in addition to salaries. Health insurance and 401(k) matching are important considerations when debating whether retirement should be delayed by a year.
If you retire at age 65 before you qualify for Medicare, you may face significant out-of-pocket insurance costs. And if an employer offers her a 401k match, she’ll be parting with that cash.
Health insurance: fidelity Out-of-pocket medical expenses are estimated to be just under $12,000 annually.
401(k) matching: The most common employer matching is 50 cents on the dollar up to 6% of salary. So if your salary is her $150,000, your employer could add her $4,500 to your retirement account (assuming you have at least $9,000 in savings).
- Cost of delaying retirement by one year: $12,000 + $4,500 = $16,500
yes. Even if he delays retirement by one year, it could make a lot of sense financially. But the reality totally depends on your personal situation.
social security: A year can make a difference of $0 to $500,000. Let’s take a conservative example and say it costs you $50,000 (assuming you start benefits early).
pension: (Excluded from this total as very few people receive pensions and very few people retire before vesting.)
Labor Income: $50,000 and up
Work benefits: $16,500 ($12,000 health insurance premium, $4,500 employer matching fee)
Deposit withdrawal delays: $8,000 and up
Contribution to savings: $85,000 (if you can maximize your catch-up contribution and delay withdrawal of funds for 15 years)
your time: PRICELESS, as they used to say in TV commercials
The cost of delaying retirement by just one year varies, but there is no doubt that: $100,000 to $200,000 This is a conservative estimate, except that time is really precious. At least it’s worth it to offset the potential gains of working longer.
And remember, retiring somewhere cheaper can more than offset the other costs of early retirement.
There is no right time to retire. Big decisions in life, such as marriage and childbirth, are made by ourselves.
Use the NewRetirement Planner to run through scenarios of what it means to you to retire one year later (or five years earlier). Just remember to balance the financial aspect with how you actually want to spend your time.