Early retirement is all the rage these days, and people are doing it at increasingly younger ages. If you're tired of your job, or have specific things you want to do before aging takes its toll, then retiring early may seem like an appealing move. But before you rush to exit the workforce, consider these compelling reasons to hold out a bit longer.
1. You haven't saved enough
Social Security on its own won't provide enough income for you to live comfortably. If your earnings were average, your benefits will replace about 40% of your former income. Most seniors, however, need about double that amount to pay for more than just basics. In other words, if you want to travel at all, dine out, do activities, and enjoy small luxuries like cable TV, you'll probably need far more than 40% of your pre-retirement earnings. Therefore, if you haven't saved much money for your golden years, it pays to wait on retiring and instead work longer to boost your nest egg.
Imagine that working an extra two years allows you to add $20,000 to your nest egg. If you take annual 4% withdrawals from savings in retirement, which many experts recommend, that'll give you an extra $800 a year. That may not seem like a lot, but it could be enough to buy you a modest getaway or even a year's worth of cable. Remember, too, that holding off on retirement allows you to leave your existing savings untouched for longer.
2. You want more out of Social Security
You probably know that when you work, a chunk of your income is lost to Social Security taxes. The upside is that you then get to collect benefits in retirement. And the longer you work, the more money you might collect on a monthly basis as a senior.
You're allowed to file for Social Security as early as age 62, but waiting until full retirement age ensures that your benefits (which are calculated based on your earnings history) aren't reduced. Full retirement age is 66, 67, or somewhere in between, depending on the year you were born. On the other hand, if you delay benefits past full retirement age, you'll boost them automatically by 8% a year, up until age 70.
Now, if you stop working, you may not have the option to hold off on filing for Social Security, but if you resist the urge to retire early and instead work so you can grow those benefits, you'll have a higher monthly income stream to look forward to for life. And that's especially crucial if your savings aren't particularly robust.
3. You're relatively healthy
Many people rush to retire early because they're afraid that if they wait, they'll only get a limited number of retirement years to enjoy. But these days, Americans are living longer, with one in four surviving past age 90 and one in 10 making it past 95. Therefore, if your health is strong, and you're in good physical shape, you may be better off delaying retirement a bit, boosting your savings, growing your Social Security benefits, and then having more money to enjoy that time later -- because chances are, you'll still have a lot of it to look forward to.
4. You don't know other people who are retired
There's a reason that retirees are 40% more likely to be diagnosed with depression than workers -- too much free time can become a bad thing when it leads to feelings of boredom, loneliness, and worthlessness. One danger of retiring on the earlier side is not having the company you need to stay engaged, enjoy activities, and maintain a social life. Therefore, if you don't know other retirees or soon-to-be retirees, it might pay to keep working for the social interaction alone, and then retire at a time when more of your friends do.
In some cases, retiring early can be a fulfilling move that also makes sense financially. But as you can see, there are plenty of good reasons not to jump the gun. No matter what decision you land on, weigh your options carefully before making your choice. That way, you're less likely to regret it.
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