For better or worse, Americans are retiring later these days. According to a study by human resources consulting firm Willis Towers Watson, almost 25% of Americans think they won't retire until age 70 or later. Transamerica's latest retirement survey echoes this sentiment, with two-thirds of baby boomers stating that they're either presently working past age 65 or plan to do so.
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While there are some benefits to working into your 70s, there are also some drawbacks to postponing retirement.First, the pros:
1. You'll get to save more
The longer you keep working, the more money you'll get a chance to save -- money that can make the difference between a financially stressful retirement and one that's more comfortable. For every extra year you work, you'll get an opportunity to max out your retirement plan contributions, which, for workers 50 and over, are currently $24,000 a year for a 401(k) and $6,500 for an IRA. Plus, if your employer offers a 401(k) match and you contribute enough to take advantage, you'll get free money for every extra year you spend on the job. And since working longer should allow you to hold off on Social Security, you'll be rewarded there as well. For every year you delay your benefits past your full retirement age, you'll get an 8% boost in your base benefit amount up until age 70. So if your full retirement age is 67 and your full benefit amount is $2,000 a month, waiting until 70 will increase that benefit to $2,640 for the rest of your life.
2. Working longer may be good for your health
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If you don't like your job and find it stressful, then working into your 70s could negatively impact your health. But if you enjoy what you do and don't find it too mentally or physically taxing, working longer could actually be better for your health. A recent study out of Oregon State found that working past age 65 could lead to a longer life, while retiring earlier could increase the risk of dying. Talk about motivation.
3. You'll have a shorter retirement to fund
Working into your 70s will allow you to accumulate more savings for when you do retire, but more so than that, it'll also reduce the number of retirement years you'll have to fund. If you retire at age 65 but live until 90, that's 25 years of living expenses for your savings to cover. But if you retire 10 years later, you'll only need to worry about 15 years of expenses. Plus, if you have a shorter retirement, you might enjoy it more because you'll have extra money on hand to pay for the things you enjoy.
But here are the cons:
1. It could also be bad for your health
Despite the recent influx of studies suggesting otherwise, working longer could actually have a negative impact on your health. This especially holds true if your job is stressful or physically draining. While it's true that working provides an opportunity for some seniors to socialize, move around, and exercise their minds, those in poor health might benefit from a less demanding schedule.
2. You'll have less time to enjoy retirement while you're relatively young
Many people look forward to retirement because it offers an opportunity to travel and pursue interests without the constraints of a full-time work schedule. But retiring later means running the risk that you won't be physically fit enough to enjoy your newfound leisure time to the fullest. While there are always exceptions, retirees in their mid-60s tend to have more energy for activities than those a decade their senior. If you postpone retirement too long, you'll risk missing out on those critical years of better health.
3. You might pay a lot of taxes thanks to required minimum distributions
Those who hold retirement accounts like traditional IRAs and 401(k)s are required to start taking minimum distributions when they reach 70 1/2. Now if you're still working at that age and have a 401(k) plan through your employer, you can hold off on taking distributions until you retire. Similarly, you don't have to worry about required minimum distributions if you have a Roth IRA. But if you have a traditional IRA, you'll need to take your minimum withdrawal at 70 1/2 even if you're working full-time. Once that happens, that extra income could cause your taxes to go -- especially if that distribution bumps you up into a higher tax bracket.
There's an upside and downside to retiring in your 70s, but if you actually want a say in the matter, your best bet is to start saving for retirement as aggressively as possible. The more savings you amass, the better your chances of getting to retire when you choose, whatever age that happens to be.
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