3 benefits of retiring later in life
With a growing number of Americans falling behind on retirement savings, more and more workers are coming to grips with the idea of postponing retirement into their 70s or possibly beyond. In a recent study by human resources consulting firm Willis Towers Watson, about 25% of American workers said they expect to retire at age 70 or later. But while retiring later in life may not be ideal from your perspective, here are a few late retirement benefits that might change your mind.
1. You'll stretch your savings
According to Fidelity Investments, the average IRA has an account balance of $94,100, while Vanguard estimates the average American's 401(k) balance at $96,288. But while $95,000 -- the approximate average of the two figures -- is certainly a respectable sum for someone in his or her 20s or 30s, the problem is that this number applies to pre-retirees in their 50s and 60s as well. Of course, there are plenty of older workers who have amassed far more in their savings plans than $95,000, but at the same time, 30% of Americans 55 and over have no retirement savings whatsoever.
Meanwhile, Americans are living longer these days. According to the Social Security Administration, the average 65-year-old man today can expect to live until 84.3, while the average 65-year-old woman can expect to live until 86.6. So if we take that typical $95,000 balance and spread it out over a 20-year retirement, the average senior is looking at roughly $400 a month of savings-based income. Even if you throw in Social Security benefits, which, for the average retiree today, equal $1,360 a month, that's still only $1,760 a month of income to cover living expenses.
The benefit of retiring later in life is that you'll have fewer years of retirement to fund, which will help you stretch whatever savings you have. Spreading that $95,000 over a 15-year retirement, for example, will give you close to $530 a month in non-Social Security income, which is almost $130 more than what you'd get in a 20-year scenario. Not only that, but working longer will give you an extra opportunity to pad your nest egg so there's more money to work with.
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2. You'll boost your Social Security benefits
Another plus of delaying retirement is that you'll get an opportunity to increase your Social Security benefits -- and in more ways than one. While you can claim Social Security as early as age 62, doing so will trigger a permanent reduction in benefits. That's why retirees are usually advised to take benefits at their full retirement age, which, for today's workers, is 66, 67, or somewhere in between. Waiting until your full retirement age means you'll get to collect your Social Security payments in full, but if you hold off past your full retirement age, you'll get an 8% boost in benefits for every year you delay, up until age 70.
Imagine your full retirement age is 66 and you're entitled to $1,360 a month in benefits at that point. If you delay those benefits until 70, you'll increase them to $1,795 a month -- for the rest of your life.
But aside from allowing you to delay claiming benefits, working longer can also help you increase your full benefit amount. Your Social Security payments are based on your top 35 years of earnings. Most people, however, earn more at the end of their careers than at the beginning. If you work a few years longer at a higher salary, you'll knock out some of your lower-earning years for a higher average overall. This strategy can especially work to your advantage if you took time off at any point during your career.
3. You're less likely to get bored
According to a 2016 TD Ameritrade study, 24% of baby boomers and 35% of millennials said that being bored or not having enough to do in retirement was a major concern. And it's a legitimate worry. A study by the Institute of Economic Affairs found that retirement increases the probability of suffering from clinical depression by 40%, and increases the likelihood of a physical ailment by 60%. But since most Americans fail to account for leisure expenses as part of their retirement planning, for many, the boredom factor might kick in sooner than expected. On the other hand, if you work longer, you'll postpone the tedium so many would-be retirees fear -- and the associated mental and physical impact it can have.
Some people have no choice but to retire later than they'd like, but even if you do have the option to retire on time, or even early, it pays to consider the benefits of holding off. Entering retirement financially and mentally prepared will help you enjoy those years to the fullest.
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