Should You Delay Your Retirement?

You’ve probably been dreaming about retirement since the first day you entered the workforce. Whether you envision your post-working years as a time to travel the globe, hit the golf course every day, spend more time with the grandkids or just lie on the beach sipping piña coladas, one thing is certain: It’s going to be awesome.

Finally, after toiling away in the workplace for decades, your 66th birthday is just around the corner. (That’s the U.S. full retirement age for people born between 1943 and 1954.) But before you slip on that party hat, cut your retirement cake and tell your employer your working days are over, you may want to think again. It turns out there are some major advantages to postponing retirement.

Here are four good reasons to hold off on retirement for a few more years.

1. Earn More Money (Duh)

OK, so this isn’t a shocking revelation. Obviously, many people simply can’t afford to stop working at traditional retirement age. In fact, 82% of American workers age 60 and older say they either are or expect to keep working past the age of 65 (see Why Boomers’ Retirement Is Different from Their Parents), according to a survey from the Transamerica Center for Retirement Studies.

Why do they plan to keep working? It’s all about the money. Nearly half (44%) of the survey respondents say their top retirement concern is outliving their investments and savings, and one-third of those surveyed believe their standard of living will diminish once they stop working.

“The main assumption that must be made when doing retirement planning is life expectancy,” says James D. Di Virgilio, CIMA®, CFP®, cofounder of Chacon Diaz & Di Virgilio, in Gainesville, Fla. “Life expectancy will affect when you choose to take Social Security, how long you should stay employed, how much you should spend, etc. According to the Social Security Administration, average life expectancy for a 65-year-old is 84.3 years for a male and 86.6 years for a female. Married individuals tend to live even longer, with a greater-than-average probability of at least one spouse living to age 90. The longer you think you will live, the more beneficial it is to wait on retiring, financially speaking.”

It’s simple math: The longer you work and the more you save, the bigger the nest egg you’ll have when you finally do retire. To top it off, when you postpone retirement, you’ll also delay tapping into your retirement assets. The longer you wait to withdraw from retirement accounts, the more interest you’ll accrue – and this can really add up over time. In other words, postponing retirement not only gives you more years to earn and save, it also decreases the number of retirement years you’ll need to fund. It’s a win-win.

In addition, putting off retirement means you won’t have to downgrade your lifestyle. Many retirees find themselves on a tight budget (see 5 Ways to Stretch Your Retirement Budget) which sometimes means downsizing to a smaller house or condo, skipping vacations and restaurant dinners, and spending more time clipping coupons. If the thought of pinching pennies for the next two decades sends shivers down your spine, you might want to consider working for a few more years (see Boomers: Twisting the Retirement Mindset). By working longer, you’ll have the extra cash to have fun now and travel more when you finally do retire.

2. Rake in a Bigger Social Security Benefit

Holding off on retirement usually leads to a heftier monthly Social Security benefit. Although you can start claiming Social Security benefits at the age of 62, your monthly check will be much higher if you wait.

If you start collecting Social Security at age 62, your monthly benefit is reduced by a whopping 30%. On the other hand, if you wait until age 70 to claim Social Security, “you will have your monthly benefit compound up to 8% per year. I can’t think of anywhere else where someone can be guaranteed an 8% annualized return with no risk,” says Mark Hebner, founder and president of Index Fund Advisors, Inc., in Irvine, Calif., and author of “Index Funds: The 12-Step Recovery Program for Active Investors.”

That means at age 70 you’ll receive 132% of the monthly benefit you would have collected at your full retirement age. After age 70, there is no additional benefit to delaying your payments.

What’s more, Social Security benefits are calculated based on your 35 highest-earning working years. So, if you postpone retirement and earn a higher salary in your 60s than you did earlier in your career, you could boost your Social Security payments even more.

3. Live a Longer, Healthier Life

Many studies have shown that working longer may increase your life expectancy. In fact, Andrew Gaches, a longevity consultant for actuaries Club Vita told the British website The Telegraph.com that retiring at age 70 rather than 60 adds around 13 months to a man’s life expectancy and 12 months to woman’s lifespan, even when allowing for differences in each person’s health, wealth and lifestyle.

Moreover, if you keep working full time, you’ll also continue to receive employer-paid health benefits if you work for a company that provides them. Let’s face it: The health benefits you receive through your employer are likely to be much better than any health insurance you could afford as a cash-strapped retiree. This is especially important if you’re not old enough to qualify for Medicare. In short, if you delay retirement, you will likely live a longer life as well as a healthier one, thanks to those superior employer-sponsored benefits. For more, see Can Retirement Damage Your Health?

4. Explore A New Career

Just because you decide to postpone retirement doesn’t mean you have to keep working the same demanding office job you’ve had for the past 40 years. Now is your chance to try something totally different. According to the 2015 CareerBuilder's annual retirement survey, of the 54% of senior workers (age 60+) who say they'll work after retiring from their current career, 81% say they'll most likely work part-time, while 19% plan to continue working full-time. What kind of jobs will they pursue? Customer service, retail and consulting are the three most common answers. For ideas, see 10 Money-Making Jobs for Retirees.

These post-retirement jobs are often referred to as “third-act careers.” Whether you choose to work part-time at a clothing store or take on an exciting consulting role, your third-act career (see Second Career in Retirement) may prove to be much more rewarding than the earlier years of your profession. For more, see Don't Retire Early – Change Careers Instead.

The Bottom Line

While it may be tempting to flee the workforce the moment you reach full retirement age, there are some major benefits to sticking it out for a few more years. Perhaps most important is this: The longer you work, the less likely you are to outlive your money. About one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95, according to the Social Security Administration. 

If you retired at the age of 66, would you have enough money to last you another 24 years or longer? If not, you may want to delay retirement, keep bringing home a paycheck and continue growing that nest egg. For tips on avoiding mistakes that can undermine your cache, see 5 Ways to Lose Your Retirement Nest Egg.

“Putting off retirement is becoming common since many haven’t saved enough,” says Carlos Dias Jr., wealth manager of Excel Tax & Wealth Group, in Lake Mary, Fla. “Once you factor in the costs of healthcare, long-term care needs, inflation and other unexpected expenses, working until age 70 might become the new normal.”