Working Beyond Retirement Age: Benefits to Delaying Retirement
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Just because you've reached an age when many retire doesn't mean it's time for you to stop working. A growing number of Americans wait longer to retire: Since the Great Recession the average retirement age has risen from 57 to 62, according to the Associated Press-NORC Center for Public Affairs Research.1
Whether by choice or necessity, working past the age when many typically retire can offer several significant benefits. "Making the conscious choice to retire when the time is best for the economy and your career can have a big impact on your finances," says Emily Guy Birken, author of The 5 Years Before You Retire.
You might want to delay retirement for a few years for these three key benefits:
Play catch-up with your IRA and 401(k). The IRS caps the amount of money you can put into your retirement accounts each year. For your 401(k) that maximum is $17,500, and for IRAs it's $5,500. However, once you turn 50, that limit goes up to $23,000 for your 401(k) and $6,500 for your IRA. The longer you continue to work, the more time you have to take advantage of those “catch-up” contributions.
Pump up your monthly Social Security benefits. Another perk to working longer before you retire is increasing the amount you receive from Social Security. While you can begin taking Social Security as early as age 62, doing so permanently reduces your benefits. Instead you may want to wait at least until your full retirement age, which varies depending on when you were born. (Check ssa.gov for the appropriate year for you.) Doing so means you increase your monthly payments by 8 percent each year until age 70, when you reach the maximum benefit you can receive.
Delay drawing down your nest egg. Waiting a few extra years to retire gives you more time to grow your savings. "Even a couple of extra years can make a big difference," says Birken. "Not only are you still building up your nest egg, you're also waiting a couple of years before you start drawing it down."
Remember to remain flexible when determining what those last few pre-retirement years might look like. While you might be planning to retire at a certain age, you could find yourself out of a job before you're ready. It makes sense to prepare for the unexpected. That means building relationships with contacts you can reach out to should you decide to take up contract or freelance work. Also, give some thought to your career options beyond your current work situation.
"The main thing is to not get married to any particular view of what retirement is going to be," says Birken. "The good news is we have a lot of options available to us that our parents never had."
1. "Working Longer: Older Americans' Attitudes on Work and Retirement," October 2013.
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