Who doesn’t want to retire? More people than you may think, including me. The rationale for continuing to work comes from the obvious, “I love what I do” to “What would I do?” Our experience as financial advisors would suggest that a large contingency is simply unwilling to spend down their life savings.
Delaying retirement on your terms is fine if that floats your boat. However, delaying leaving your job because of financial challenges can bring many unexpected challenges. Murphy’s Law seems to raise its head when the worst possible thing that can happen not only happens but occurs at the worst possible time. You suddenly need resources that you simply don’t have.
One challenge is losing your job when you intend to keep working. This can occur due to a variety of reasons, including economic downturns or because of your health. In either case, you were counting on an income stream that could suddenly disappear.
Working later than expected can also cause your Medicare Part B premiums to be higher, depending on the income you are possibly earning. Like all things, one decision – delaying retirement in this case – can have multiple impacts across your financial landscape.
You can put off Social Security until age 70 if you so desire. For many Americans, that would be a wise choice, but each of our circumstances is unique. The Social Security Administration tells us most people opt for a check earlier than waiting for full retirement age, let alone delay receiving benefits beyond their 70th birthday.
Even working at age 73, or age 75 if you were born after January 1, 1960, you will still have to pull your required minimum distributions (RMDs) from your IRA accounts. The more you make, the higher the tax rate, so RMDs, Social Security, and your working income can add up quickly, driving you to a higher taxation percentage. Side note: This is not true in the case of 401(k) plans where, assuming you own less than 5% of the company, you can delay RMDs while you are actively employed.
Challenges also arise when spouses with gaps in their ages get married. Often, the younger spouse retires sooner than expected, harming their future Social Security payments in order to enjoy retirement with the older spouse. Or conversely, the older spouse delays, helping their Social Security payments rise.
The big challenge for many families is “What would I do?” Individuals who love their occupation without interests and hobbies struggle to fill their week. This can lead to boredom, and some social scientists argue it even brings early death.
Waiting to retire or delaying the decision is an excellent way to increase your account value and decrease the amount necessary to fund a successful retirement. The longer you wait, the fewer years you will have in retirement, lowering the amount needed and the impacts of inflation. This is not the right choice for everyone, but delaying is an option with side benefits.
Financial Enhancement Group is an SEC Registered Investment Advisor. Securities offered through World Equity Group, Inc. Member FINRA/SIPC. Advisory services can be provided by Financial Enhancement Group (FEG) or World Equity Group. FEG and World Equity Group are separately owned and operated.