Putting off retirement and staying a few extra years on the job will require a little bit of sacrifice. After all, you won’t be able to begin a life of leisure, and you’ll have fewer post-work years to travel or spend time with the grandkids. But the payoff of waiting to give up your paychecks for good could be substantial for a few key reasons.
Here are three big ways that delayed retirement could lead to much more financial security in your later years.
1. Raise Social Security benefits by putting in more than 35 years
Staying at work for a few extra years could help you raise the amount of your Social Security checks. Tetirement benefits are based on average wages after adjusting for inflation. But the SSA takes exactly 35 years of wages into account, regardless of how of how many years you actually worked. Specifically, it’s the highest 35 years of inflation-adjusted earnings that determine your benefits.
Many people see their salaries go up throughout their career. If your earnings are higher later in life than at any earlier point — such as during years you were starting out or were unemployed for part of the time — working longer can pay off.
Each year you work at your higher current salary can replace one of your lower-earning years in the calculation of your average wage. Your benefits will then equal a percentage of this higher average earnings amount.
2. Increase Social Security if you can delay your claim
Surprisingly, working for a longer time can also allow you to raise Social Security income in another way as well. That’s because delaying your claim for Social Security checks beyond when you first become eligible will result in more monthly income.
Although retirees can file for benefits when they are as young as age 62, waiting until at least full retirement age (FRA) raises the amount of monthly checks by enabling seniors to avoid getting hit with early filing penalties. And waiting until 70 increases these payments even further due to delayed retirement credits that are awarded after FRA until 70.
Most people can’t afford to delay a Social Security claim beyond the time they leave the workforce, since they’ll need these retirement benefits as an income source. But if you work longer, you can put off starting your checks while you rely on your paychecks so you can can enjoy the resulting benefits boost.
3. Provide more time to save
Finally, you can also supplement your savings by working longer.
Staying on the job for extra time enables you to continue making contributions to tax-advantaged accounts, such as an IRA or 401(k). If your company offers a 401(k) match, you can keep earning that too so your employer will pad your retirement account further. And you become eligible to make larger tax-deductible contributions to these accounts after age 50 thanks to catch-up contributions.
By providing the opportunity to grow your nest egg and your Social Security benefits, those few extra years on the job can make a huge impact on the retirement income you receive — and the financial security you enjoy in your later years.
