Ten Reasons Delaying Retirement Can Be a Good Decision

People view retirement as the ultimate reward for decades of hard work. Many look forward to the day they can say goodbye to the monotony of the daily punch clock and finally kick back to enjoy the precious golden years. However, those who study retirement closely will find no one-size-fits-all strategy on how and when to retire. Moreover, savvy individuals are rethinking the traditional retirement age by delaying retirement for various reasons.

Contrary to convention, retiring later can be a wise financial decision. Late or delayed retirement can come with its benefits. It can also be a practical decision based on one’s financial circumstances. Whether you’re nearing retirement age or at the peak of your career, it helps to consider the advantages of postponing your retirement plan by a few years.

Is delaying retirement a smart move? 

Pushing back retirement is an unconventional choice, yet it is one that more and more people are beginning to make. The average retirement age in the US is 65 for men and 63 for women. 

The transforming economic landscape and changing demographics wherein populations are aging and living longer contribute to the changing retirement timeline. The following are the top reasons to delay retirement:

1. Adding to retirement savings

By delaying retirement for several years, you can boost your nest egg strategically. You can contribute to 401(k)s, IRAs, or pension plans by working a few additional years. 

To boost your savings, you can make the most of employer-matching contributions. In the US, some employers match a percentage of retirement account contributions. Hence, you can accumulate these matching funds by staying longer in the workforce. 

For instance, let’s assume a scenario wherein your employer matches a maximum of 50% of the first 6% of your annual salary that you contribute to your 401(k). With a $100,000 yearly salary and a contribution of 6%, your contribution would be $6000. Thus, 50% of $6000 would be $3000—your employer’s match. Your total contribution would then be $9000 per year. A 3% salary contribution matched at 50% or $1500 would yield a total of $4500 in contributions.

Furthermore, past age 50, you become eligible for catch-up contributions to your retirement accounts. Additional contributions to your 401(k)s and IRAs can significantly bolster your retirement savings. As of 2023, individual workers can contribute up to $22,500 to their 401(k) plans—this amount is up from the maximum limit of $20,500 in 2022. 

In addition, the income ranges that determine your eligibility for deductible contributions to Roth IRAs, traditional IRAs, and for claiming the Saver’s Credit will all be adjusted for 2023. All eligible income ranges will increase. 

All taxpayers need to know all the IRA and 401(k) limit increases in 2023, including the following key points:

Catch-up contributions limits

An increase in the catch-up contributions for employees age 50 and above participating in SIMPLE plans will be adjusted from $3000 to $3500. Also, the catch-up contribution limit for those of the same age bracket participating in most 457 plans, 401(k)s, 403(b)s, and the Thrift Savings Plan of the US federal government will increase to $7500.

Increase in IRA annual contributions limits 

For IRAs, the annual contributions limit will be increased to $6500. However, the IRA catch-up contribution limit or max for those aged 50 and over remains at $1,000 and is not subject to a cost-of-living adjustment. 

Also, you may live longer than you think. A 65-year-old man today has a 50 percent probability of living past 85. Sixty-five-year-old couples may be surprised to know that there is a 50% chance that one of them lives past 92. With your golden years possibly extended, there’s more motivation to accumulate as much savings as possible before you retire. 

2. Extending the time horizon for investing

Savvy investors delay retirement to take advantage of the investing time horizon. Not cashing out on investments immediately allows them to grow for a few more years. 

For example, a diversified portfolio with a 7% annual return delayed by five years could produce an additional 35%. The projection assumes, however, that the market performs consistently. This strategy offers a practical advantage to grow your portfolio passively.

By delaying retirement, you can benefit from compound interest. The longer your money is invested, the more time it has to grow and generate exponential returns from your principal and previous earnings.

Choosing a longer time horizon also allows you to strategize your investments to allow for aggressive growth properly. Longer time horizons will also enable you to take more risks and allocate a portion of the portfolio to high-growth assets. This extension can increase your wealth substantially over time. Moreover, you can weather market downturns much more easily than those with shorter investment periods.

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