Should You Delay Your Retirement?
In the wake of the COVID-19 pandemic, many individuals who are approaching retirement age are opting to delay their retirement. Depending on your current financial standing, staying in the workforce for an extra year or more could be a good idea that can pay off in the long-run.
Reasons to consider delaying retirement
1. It gives you more time to plan out and minimize your future expenses.
Due to coronavirus, many people have had to deal with expenses that they had not planned for, such as job loss, the stock market losing money, and health care costs. If you were hit with financial hardship and didn’t already have a well-stocked emergency fund (which many people don’t — just 41% of Americans can cover a $1,000 emergency with their current savings), you may be struggling to make ends meet.
By delaying your retirement, you may be able to rebuild your savings and prepare for any future emergencies along the road to your golden years. In addition to contributing to your retirement plan, set aside money toward an emergency fund and pay off your credit cards and loans to minimize future expenses.
2. You can maximize Social Security benefits.
If you’ve reached age 66 and have earned your full retirement age, you can ask the Social Security Administration to suspend your social security payments until you turn age 70. This allows you to earn delayed retirement credits, which means when you do stop working and need to start collecting, you will be able to collect a higher monthly payment — up to 8% for each year you’ve suspended social security.
3. You can avoid locking in recent investment losses.
It’s no secret that the stock market has taken a hit during COVID-19, and most individuals have seen a dip in the value of their 401(k) or IRA. However, the market is always cyclical, and sooner or later, things will bounce back.
If you’re past retirement age but in good financial standing, you can avoid your retirement account’s required minimum distribution until age 72 (up from age 70.5, per the SECURE Act of 2019. This means you can potentially keep your money invested for longer and wait out the current economic decline.
4. Work can keep you busy.
The pandemic has upended many facets of “normal” life, with travel restrictions, limits on social gatherings, and business closures. If you’re stuck at home, it’s important to keep your mind active. You may not be able to see friends and family or leave your home state, but there are things that can be done during quarantine to create a sense of well-being, including staying busy with work. Remaining in the workforce during this time can ultimately improve your mental and financial health.
5. You’ll end up with more money to enjoy during your golden years.
By making smart financial decisions and actively saving for retirement, extending your retirement will result in a larger nest egg. Let’s say you planned to retire in 2020 and have been saving $1,000 a month. By continuing with your $1,000 savings and delaying your retirement by five years, you’ll have an additional $60,000 (plus any matching contributions from your employer, if applicable) to support you after you leave the workforce.
Need help with retirement planning? Contact Miller & Company LLP for a consultation today. Our top-rated CPAs will help you plan for a successful retirement by considering all factors in your personal and professional life.