When to retire: 3 benefits of delaying your retirement


When it comes to growing your retirement assets, time can be a valuable tool.

Not only does it matter how early you start putting money aside for retirement, but delaying your retirement date by just a couple of years — and postponing the time you begin receiving Social Security benefits — can also have a significant impact on your retirement income.

This is good news for Americans, who, thanks to advances in medicine and healthier lifestyles, are living longer in retirement, meaning their investments may need to last 25 to 30 years or more.

American men at age 65 can expect about 20 more years of life (PDF), on average, and women can expect to live almost 22 more years. This means that half of the population is likely to live beyond these averages, with almost 30% of men and 40% of women likely to reach age 90.

What’s more, traditional attitudes about retirement are changing, with a greater share of older Americans remaining in the workforce. Doing so helps them feel more connected socially, and it improves their mental and physical well-being by giving them a sense of purpose.

Here are three reasons why you could benefit from retiring later.

1. Boosting your retirement income

A significant challenge retirees face is making their retirement savings last long enough to sustain them throughout their retirement.

A recent study by the National Bureau of Economic Research found that working three to six months longer can result in an increase in retirement income that’s equivalent to boosting your retirement contributions by as much as 1% over 30 years of employment.

The study also notes that the benefits of traditional retirement strategies — such as putting more of your income toward savings or switching to a low-cost portfolio — diminish as you get closer to retirement.

Working longer and delaying the time you start to draw on your retirement funds could dramatically improve your retirement lifestyle, providing you with more time to save and earn a return on your investments.

2. Maximizing Social Security benefits

It’s possible to start collecting your Social Security benefits at age 62, but the earlier you start, the smaller your checks will be.

It actually pays to delay taking Social Security to a date later than your full retirement age (FRA) because you can accrue credits that boost your benefits. You get 8% more for each year you delay claiming beyond your FRA, up to age 70.

But remember: Those credits come to an end when you hit 70, so waiting longer won’t bring you higher benefits and could mean you miss out on some payments.

The chart below shows how delaying retirement by a few years could increase your Social Security benefits.

Source: Edward Jones

1 Assumes full retirement age is 67 (for people born after 1/1/1960).

Assumes a $1,250 contribution to 401(k)/IRA at end of every month until retirement, plus a 6.5% average annual return; income rounded to the nearest $100, portfolio values to the nearest $5,000.

2 Based on a formula from www.ssa.gov. Assumes $60,000 salary.

The above chart demonstrates the potential benefits of waiting to retire by showing the increase in value of one’s investment portfolio and first-year pretax retirement income over time. The investment portfolio’s value is calculated assuming a $1,250 contribution to a 401(k)/IRA at the end of every month until retirement, plus a 6.5% average annual return; income is rounded to the nearest $100, and portfolio value is rounded to the nearest $5,000. The first-year pretax income is calculated by assuming an initial withdrawal of 4% from investments, and a collection of social security on a $60,000 salary.

The smallest bar shows that with a portfolio of $650,000 at age 62, one’s first-year pretax retirement income would be $42,500. The next bar shows that the portfolio would grow to $770,000 by age 64, resulting in a first-year pretax income of $49,700, a 17% increase in pretax income over age 62. The next bar shows that the portfolio would grow to $990,000 by age 67, resulting in a first-year pretax income of $63,200, a 49% increase in pretax income over age 62. The final bar shows that the portfolio would grow to $1,250,000 by age 70, resulting in a first-year pretax income of $79,300, an 87% increase in pretax income over age 62.

The decisions you make about claiming Social Security can have a big impact on your retirement income. In fact, we’ve identified four key factors that could influence your decision on when to take your benefits.

To see where you currently stand, your yearly statement from the Social Security Administration can provide you with an estimate of your retirement benefit, which is based on your FRA and work history.

3. Staying connected and engaged

Instead of the rather low-key retirements of their parents, today’s retirees want to be “more active, engaged, exploratory and purposeful in retirement,” according to research conducted by Edward Jones and Age Wave, an organization focused on aging and retirement.

This new attitude toward retirement means it no longer represents the end of work for many, but instead is seen as an opportunity to enjoy greater freedoms, such as choosing whether and how much they want to work.

More retirees are working on their own terms, often with renewed purpose, the research finds. One-third of those planning to retire say they are interested in working in some capacity in retirement. And two-thirds of workers age 65 and older say they work primarily because they want to, not because they have to.

Continuing to work helps retirees maintain social interactions and regularly exercise their mental abilities, potentially reducing their risk of cognitive decline.

How Edward Jones can help

Want to learn more about improving your retirement income? Talk to your Edward Jones financial advisor about steps you can take now to control what your income looks like in the future.

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