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You Can Save for Longer

Working just one extra year can make a big difference in your retirement savings. There are two reasons: Compound interest, and the ability to take advantage of additional tax-free savings.

Compound interest on your invested funds adds up quickly. If you have a $350,000 nest egg and earn 6%, you’ll have another $21,000 in gains if you wait just one more year before starting to take out your money -- and that’s without contributing anything during your last year of employment. Wait five years, and at the same rate you could realize an additional $118,000 in gains.

When you’re 50 or older, you can also invest more each year in both your 401(k) and your individual retirement accounts. These extra “catch-up” contributions increase your maximum 401(k) contributions by $6,000 and your maximum IRA contribution by $1,000. This adds up to $24,000 in your 401(k) and $6,500 in your IRA – a total of $30,500 in additional tax-free investing.


You Can Take Social Security Later

Working longer and delaying taking your Social Security benefits can boost your monthly benefit for the rest of your life.

When you reach your full retirement age, you get 100% of the monthly Social Security benefit you’ve earned. Your full retirement age is based on when you were born. If you were born between 1943 and 1954, your full retirement age is 66. If you were born after 1960, your full retirement age is 67.

You can start taking benefits earlier, at age 62, but your benefit is reduced substantially – by around 30%. As you get closer to your full retirement age, this reduction gets smaller until you hit your full earned benefit. However, if you wait to take benefits until after you’ve reached your full retirement age, those monthly benefits start to increase – about 8% more in benefits each year you wait after your full retirement age.

Go here to see how much you could increase your benefits:

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You Can Continue Taking Advantage of Employer Benefits

Don’t underestimate the value of your employer’s group health-insurance coverage. Obtaining similar coverage on the open market or through COBRA can be very expensive, if you can get it at all. Giving up your employer-provided healthcare benefits could cost you thousands, and you might have to switch doctors, which could be an issue if you or your spouse has any chronic health conditions.

Some older insurance buyers could be eligible for subsidies from the Affordable Care Act to help pay for coverage. The future of the ACA, however, is uncertain. Proposed changes being discussed would almost certainly make health insurance premiums much higher for seniors.

Aside from health care, there are other employer benefits to remember as well – such as group disability insurance coverage. So be sure to understand exactly what you give up by leave your employer’s benefits behind.

You May Become Eligible for More Pension Money From Your Employer

If you have a defined-benefit pension plan, talk to your human resources department to learn exactly how much more you could receive if you waited a while to retire.

With a defined-benefit plan, your benefit is guaranteed by your employer and not dependent upon your investment performance. This is in contrast to a 401(k), which most employers now offer, to which you make defined contributions without a guarantee of income. If your pension benefits are guaranteed, you may be surprised to know that your benefits will typically increase if you work longer than the number of years required to claim the full benefit. The difference could be substantial.

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You Won’t Have to Downgrade Your Lifestyle Later

It’s no secret that many retirees find themselves on a tight budget. You probably know someone who skipped a vacation last year or downsized into a smaller house. If pinching pennies and clipping coupons isn’t your cup of tea, working a few more years makes sense. You’ll find you will have extra money to enjoy life both now and during your retirement years.
Page updated 6/29/2016