If you have already made up your mind on an age for retirement, it may be of tremendous value to at least consider what that will actually look like when that time comes around.
George walks into my office looking very troubled. Six months out of work have been a bump in the road that just had not been on his radar. In fact, it’s now more than a bump in the road. The severance payment he received from his apologetic employer has run out, and he’s living off savings without a new job offer.
We sit down and start to talk through his options. At 50 years of age, time has become the enemy in preparing for retirement.
Now, this particular “George” is a fictional character, but he is a composite of a number of clients who have walked through my doors over the years. A job loss, a protracted illness or disability, the sudden death of a spouse, or a messy divorce – any of these major life events has the potential to derail a nice, neat plan for the future.
When any one of these happen and it negatively impacts your retirement accounts, you have several options:
• Seriously “downsize” your lifestyle, so that you need less while you continue to save for the future.
• Supplement the income of your remaining working years with the long hours of a second job.
• Or, you can take the decision to work longer than you may have planned, postponing your age for retirement by a few years.
When people first hear this third option, it can sound disappointing – until we begin to go over the benefits of a later age for retirement. When you hear these benefits, you may just think to yourself, “Perhaps this should have ALWAYS been part of my game plan anyway?”
Retiring Later as a Quality of Life Choice
Did you know that retiring 4 years later can increase your social security benefits by up to 24%?
First of all, let’s get a little bit of a reality check.
“Early retirement” has often been presented as a sign of success. But it’s interesting that we don’t apply that to famous celebrities or celebrated entrepreneurs. In fact, we are surprised to hear if one of them retires at all. Their careers seem so exciting and fulfilling, so why would they want to retire?
Thinking about it that way, maybe an early age for retirement is actually more of a sign that a person didn’t enjoy their career very much – that it was just the necessary evil they were tolerating to pay for the weekends. Can that really be defined as a successful working life?
Here’s something else to think about: the longevity revolution. Thanks to advances in healthcare, we are living longer and healthier than ever before. A high percentage of us can expect to live well into our 90s, which means thirty or more years of retirement. That’s almost as long as an average working life! So with plenty of that ahead, why are we in such a rush to get started?
Furthermore, studies are continually showing that older adults who are active, not sedentary, and have things to occupy them intellectually experience less isolation and depression. In other words, a later age for retirement may actually be a health choice.
If you’ve read this far and are intrigued (or even excited) about the thought of planning on a later retirement, let me suggest 3 things to you:
1. Understand the Benefits. I’ve just mentioned the positive impact that working can have on mental health, but there are clear financial benefits as well. Obviously retiring later means you can hold off on starting to eat into your nest egg longer, but there’s another benefit you may not be aware of: a larger monthly social security check.
For most of us, social security will form the “foundation” of our retirement income plan. Claiming too soon reduces lifetime benefits, which means you will have to use more of your savings to supplement it.
Let’s look at an example (see chart below). Consider a single retired wage earner born between 1943 and 1954. That individual has the choice of applying for social security between the ages of 62 and 70. For every month that person delays, his or her monthly benefit increases. The individual who waits until age 70 loses all the years that could have been spent collecting, but when collecting begins, he or she get a much bigger benefit that will continue for life. The longer we are living, the more sense this makes.
Holding off on collecting social security is a little like buying “longevity insurance,” but at rates far more favorable than any insurance company could offer. Benefits increase by 8% per annum for every year you postpone retiring.
To take a look at your own personal situation, use the “early or late retirement” calculator at the Social Security Administration website.
2. Consider “ReHIREment”. Perhaps your current job is quite stressful or physically taxing, so that continuing with it beyond age 60-or-so is not desirable. A new line of work might be an interesting and exciting alternative.
If your home is paid off and the kids are out on their own, your commitments will be lower so you don’t need to make as much to live comfortably. You might consider a less demanding job that still allows you to defer drawing on social security. Here are just a few ideas to get you thinking:
• Love fishing? What about a job as a salesperson in a tackle shop?
• Is cooking your passion? How about working in a kitchen store?
• Do you like kids? Could you drive a school bus or train to be a teacher’s aid?
• Do you really like meeting people? What about a job at the front desk in a hotel?
3. Reset Your Expectations Sooner. Imagine getting to the age you always thought you’d retire and then finding out it’s going to be tighter than you thought and you need to put it off a few years. That could be very disappointing. But if you’ve already faced the prospect of a longer working life ahead of time it’s going to enable you to face it as “part of the plan”, instead of with any feeling of failure.
You owe it to yourself to keep an open mind and take another look at when you’ll retire. The future belongs to those who plan!