While the word “retirement” can mean a number of things to different people, the dictionary defines it as “the action or fact of leaving one’s job and ceasing to work.” As a financial advisor, my definition is quite different. It’s my belief that retirement is ultimately about “doing what you want, when you want and not being dependent on your wealth to be able to do it.”
Nowadays, retirement is evolving from an endpoint to more of a transition. While delaying your retirement or continuing to work in retirement isn’t always a choice, working beyond what is currently defined as “retirement age” can certainly have its advantages. Here are five benefits to consider if you’re on the fence about defining the big day:
Managing health care costs
Working longer could significantly help you when it comes to the cost of health care. For this reason, many of my clients between the ages of 62 and 65 will choose to continue working so they can keep their health care benefits until they are eligible for Medicare at 65. One reason for this approach is that their employer’s health insurance, which can be much more cost effective than Medicare, can also provide them with more comprehensive coverage.
It’s important to know that your Social Security grows every year from what is considered full retirement age (FRA) — 66 for those born 1943–1954 — to the age of 70. Odds are you won’t be working in your 80s and 90s, so this could be a nice way to help manage the impact of inflation as well. For every year you delay taking Social Security past your FRA, you’ll get a boost in your benefit until age 70. If you’re relatively healthy, it might help you to delay and collect the larger benefit.
Deferring Required Minimum Distributions
Aside from the costs of health care, once you hit age 70½, you’ll need to remember that you’ll need to start taking a Required Minimum Distribution (RMD) from certain retirement accounts. Regardless of your working status, RMDs must be taken from a traditional IRA at this time. However, when it comes to your workplace savings plan, you can delay tapping into a 401(k) or similar employer-based retirement plan until you retire. Deferring these withdrawals can potentially help you to build a larger nest egg for when you do decide to retire and continuing to make pre-tax 401(k) contributions may even help you with your tax bill, a win-win.
Fewer withdrawal years
By delaying your retirement by even a few years, you may be able to take larger withdrawals from your retirement savings accounts. How? You’ll be making fewer withdrawals over a shorter time period. This could potentially make your wealth last longer in your retirement years or even help you to leave a larger legacy. Also keep in mind that there are penalties for early withdrawals.
If you’re under 59 ½, you’ll need to pay the IRS penalty tax that might be due, unless an exception applies. You’ll also be paying income tax on the full amount of your withdrawal from Traditional IRAs. So, if you are able, the longer wait might benefit you in the long run. A lower tax rate in your later years may also yield a lower tax taken from your withdrawals. But, before making any decisions, consider creating a plan for taking distributions to help determine if your assets will provide you with the income you’ll need in retirement.
“Working” has its health benefits
Another benefit of working into your golden years is that it may have added health benefits. Many recent studies are showing that those who work longer live longer. A 2016 study from the Journal of Epidemiology and Community Health found healthy adults who delayed their retirement for one year past the age of 65 had an 11 percent lower risk of becoming ill. Keeping active both physically and mentally are key components to living a long and healthy life. And, there is some belief that staying active and engaged at work may help fight the natural decline in physical and cognitive functioning that can happen as you age. But, if you aren’t working don't worry. There is plenty of research that also shows volunteering, finding new hobbies or pursuing one’s interests after retirement is linked to a longer life expectancy.
Getting on the same page with your spouse
If you’re married or have a partner, conversations about where and how you want to live in retirement are important and an essential part of your retirement planning process. Research from Voya Financial found that when it comes to an ideal retirement lifestyle, among those with a spouse or partner, 37 percent did not agree or had not discussed the topic. Odds are you and your spouse or partner will want to retire around the same time, so you can enjoy your golden years together. So, if you haven’t yet figured out what it is you’re going to “do” in retirement, or with whom, there’s no reason to rush into it.
Sometimes, though, deciding when you want to retire just comes down to a gut feeling. When you’re ready, you’re ready. Be sure to talk with your financial advisor so they can help you along the way to make sure you have a proper plan in place. Together, you can work to define retiring on your own desired schedule.
Securities and investment advisory services offered through Voya Financial Advisors, Inc., member SIPC. Neither Voya Financial Advisors nor its representatives offer tax advice.