Why Delaying Retirement Isn’t Always the Best Option

Retirement planning often feels like a puzzle, especially when savings fall short of expectations. One common approach people consider is delaying retirement, thinking a few extra years in the workforce will provide the financial cushion they need. While this strategy has its merits, it’s not always the foolproof solution it appears to be.

In reality, delaying retirement can present challenges. Health issues, unexpected job losses, or even age-related bias in hiring can derail the best-laid plans. In fact, research shows that around 45% of working-age households in the U.S. don’t have any retirement account assets at all, leading to a significant retirement savings gap estimated between $6.8 and $14 trillion. For many, working longer is not enough to bridge this deficit, highlighting the need for diversified and proactive retirement planning strategies.

Understanding why delaying retirement isn’t always the best solution is important, especially if you’re relying on this approach as your primary backup plan. A financial advisor can help craft a personalized retirement plan that can help boost your retirement savings without delaying your retirement.

In this article, we will examine why working longer might not always be the best route and explore alternative strategies to strengthen your retirement funds.

The appeal of delaying retirement

When faced with insufficient savings, many people consider extending their working years as a way to bolster their retirement funds. This strategy can be particularly appealing for several reasons:

1. Boosting savings and income

Working longer means more years of earning a steady income, which can significantly enhance retirement savings. By delaying retirement, individuals can continue contributing to retirement accounts like 401(k)s and IRAs, potentially benefiting from employer contributions, tax advantages, and compound interest. This makes working longer an attractive option for those who started saving late or experienced setbacks in their financial planning.

2. Extending Social Security benefits

One of the most significant financial advantages of delaying retirement is increased Social Security benefits. For every year a person postpones claiming Social Security benefits beyond their full retirement age (typically around 67), they receive an annual increase of about 8% until age 70. This means that someone who waits until 70 could receive substantially more each month compared to someone who claims benefits at 62. For many, this higher payout can be the difference between financial comfort and financial struggle in retirement.

3. Reducing the number of retirement years

Another reason delaying retirement is appealing is that it reduces the number of years a person needs to rely on their savings. For example, if someone retires at 70 instead of 62, they shorten their retirement period by eight years. This means less time drawing down savings, making their existing retirement funds last longer. The combination of additional savings and fewer years of expenditure can create a more secure financial outlook.

While these benefits make a compelling case for delaying retirement, it’s essential to recognize that this strategy is not without its risks.

Why retirement becomes harder the longer you wait?

While the idea of working longer to grow retirement savings can sound practical, the reality is often more complicated. Health issues, job market challenges, and unexpected life changes can make it difficult, if not impossible, for many people to extend their careers into their late 60s and 70s.

1. Health issues

As we age, health inevitably becomes a more pressing concern. For many, continuing to work beyond the typical retirement age can be physically demanding, especially if the job involves manual labor or high-stress environments. Chronic conditions, mobility issues, or general declines in stamina and energy may force individuals to stop working earlier than planned, even if their finances are not where they’d like them to be. Studies show that nearly 40% of retirees had to stop working sooner than they expected, primarily due to health problems.

2. Job market challenges

The job market can also present significant obstacles for older workers. Age discrimination, though illegal, is still a persistent issue. Older employees may find it harder to get hired, receive promotions, or keep their positions, especially in industries that prioritize younger, tech-savvy workers. A study by AARP found that over 60% of workers aged 45 and above had seen or experienced age discrimination in the workplace. Additionally, the rapid pace of technological change means that older workers may struggle to keep up, making it difficult to remain competitive without constant skill development.

3. Unexpected life changes

Life can be unpredictable. Health crises, family emergencies, and economic downturns can all disrupt even the best-laid retirement plans. A sudden job loss at an older age can be financially devastating, as finding a new role may take longer or result in lower pay. Additionally, caregiving responsibilities for aging parents or spouses may compel some to step away from work earlier than they intended, creating further financial strain. These realities underscore the fact that relying solely on the plan to work longer can be risky and impractical.

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Why retiring at 62 might be a better idea

For some, the decision to retire at 62, which is well before the traditional retirement age, can be the right choice. While it means receiving fewer Social Security benefits, there are several compelling reasons why it may still be the smarter option. Here’s why retiring at 62 is a good idea:

Enjoy retirement in good health: One of the main arguments for retiring at 62 is the opportunity to enjoy retirement while still in relatively good health. Many people dream of traveling, pursuing hobbies, or spending more time with loved ones during their golden years. By retiring earlier, they have a greater chance of fulfilling these ambitions without being hindered by health issues that tend to develop later in life.
Financial considerations: While retiring at 62 does mean a lower Social Security payout, it might still align better with certain lifestyle goals. For example, those who have significant savings or other sources of income may find that they don’t need the full Social Security benefits to maintain their desired lifestyle. Additionally, taking benefits earlier may reduce the overall financial risk, especially for those concerned about the future viability of Social Security or who have a shorter-than-average life expectancy. In such cases, getting access to benefits earlier, even at a reduced rate, can provide more flexibility and control over one’s retirement finances.
Reduced financial stress and flexibility: Some early retirees choose to supplement their Social Security with part-time work or side businesses. This approach allows them to keep a flow of income without the demands of a full-time job, reducing financial stress while still enjoying the perks of a more relaxed lifestyle. For many, this balance between work and leisure provides the best of both worlds, allowing them to stretch their retirement savings over a longer period without completely giving up the security of an income.

Alternatives to strengthen retirement plans without delaying retirement

1. Be proactive about financial planning

Proactive financial planning is key to building a robust retirement fund. Start by assessing your current savings, projected expenses, and sources of retirement income. Consider working with a financial advisor to create a customized plan that helps maximize savings, optimize investments, and manage debt effectively. Regularly reviewing and adjusting your plan ensures that you stay on track, even if circumstances change. It’s never too late to begin saving, but the earlier you start, the better positioned you’ll be to meet your goals.

2. Consider diversifying your investments

Diversifying investments is another critical component of strengthening retirement plans. Rather than putting all your funds into a single investment type, consider a mix of stocks, bonds, real estate, and other assets. Diversification helps manage risk, providing a buffer against market volatility. For those nearing retirement, shifting towards more conservative investment options can preserve capital while still generating returns. Investments such as dividend-paying stocks, real estate, or mutual funds designed for retirees can provide steady income streams without needing to rely solely on savings.

3. Look for part-time work or side gigs

If full retirement isn’t financially feasible, consider part-time work or side gigs. Unlike full-time employment, part-time work allows for a balance between earning income and enjoying retirement. Many retirees find fulfillment in pursuing hobbies or freelance work that they genuinely enjoy, whether it’s consulting, writing, or even starting a small business. Side gigs can provide supplementary income without the physical and mental strain of a traditional job, offering a flexible way to maintain financial stability while scaling back on work hours.

4. Seek professional advice

Financial advisors can help create comprehensive retirement strategies tailored to your unique situation. They can assist with everything from tax-efficient savings to investment planning and debt management. Moreover, professional advice can be particularly valuable when navigating complex financial products, ensuring that your retirement plan is both secure and sustainable.

To conclude

An assessment of all the advantages and disadvantages reveals why working longer is a bad retirement plan. Thus, while delaying retirement might seem like a convenient solution to address insufficient savings, it’s not a one-size-fits-all approach. Working longer can increase savings and boost Social Security benefits but also comes with potential risks. Relying solely on the ability to work longer can leave individuals vulnerable, especially if circumstances change.

Instead of banking everything on an extended career, it’s key to evaluate your unique situation and build a diversified retirement strategy. Whether it’s being proactive at financial planning, investing in a mix of assets, or considering part-time work, there are various ways to strengthen your retirement without having to delay it. By planning carefully and exploring different options, you can secure a comfortable and fulfilling retirement that aligns with your goals and lifestyle.

Use the free advisor match tool to get matched with seasoned financial advisors who can create a customized plan for your unique situation and help you plan your retirement efficiently. Answer some simple questions about your financial needs and get matched with 2 to 3 advisors who can best fulfill your financial requirements.

For further information on creating a suitable retirement plan for your unique financial requirements, visit Dash Investments or email me directly at dash@dashinvestments.com.

About Dash Investments

Dash Investments is privately owned by Jonathan Dash and is an independent investment advisory firm, managing private client accounts for individuals and families across America. As a Registered Investment Advisor (RIA) firm with the SEC, they are fiduciaries who put clients’ interests ahead of everything else.

Dash Investments offers a full range of investment advisory and financial services, which are tailored to each client’s unique needs providing institutional-caliber money management services that are based upon a solid, proven research approach. Additionally, each client receives comprehensive financial planning to ensure they are moving toward their financial goals.

CEO & Chief Investment Officer Jonathan Dash has been covered in major business publications such as Barron’s, The Wall Street Journal, and The New York Times as a leader in the investment industry with a track record of creating value for his firm’s clients.