Extending your time in the workforce could offer many benefits.
The U.S. doesn’t have an official retirement age. In fact, there are different perks you’re entitled to at various points in time related to retirement. And because of this, landing on a retirement age can be tricky.
Age 59 1/2, for example, is when you can tap a 401(k) or IRA without incurring an early withdrawal penalty. Medicare eligibility, on the other hand, begins at age 65. And full retirement age for Social Security purposes falls at either 66, 67, or somewhere in between those two ages, depending on your year of birth.
In a recent Northwestern Mutual survey, workers landed on 65 as the average age to work until. But there are benefits to working beyond age 65 you should know about.
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You can set yourself up to get more Social Security
It’s not a given that you’ll sign up for Social Security benefits the moment you retire. But generally speaking, many seniors do claim benefits around the time of their workforce exit.
As we just discussed, age 65 is not full retirement age for Social Security. So if you’re willing to work a couple more years, thereby putting yourself in a position to hold off on Social Security, you can snag a higher monthly benefit for life.
You should also know that Social Security will reward you for delaying your filing past full retirement age. For each year you do, up until age 70, your monthly benefits get to grow 8%.
Now it may be a tricky thing to stop working at age 65 but wait until age 68 to get Social Security, which would give you an 8% boost with a full retirement age of 67. But if you’re able to push yourself to work until age 68, you stand to lock in a much higher monthly benefit for life.
You can do good things for your savings
Working a couple of years beyond age 65 could help you grow a limited nest egg into a bit more money. Northwestern Mutual reports that the average retirement savings balance among baby boomers is $120,300. That’s not a ton of cash reserves over what could be a 20-year retirement or more.
But let’s say you’re sitting on that sum and you work two more years, all the while contributing an extra $8,000 to your nest egg each year during that time, which is the maximum annual IRA contribution right now for workers 50 and over. That’ll leave you with $136,300, not accounting for some modest growth that period.
But in this example, it’s not just that you’re adding $16,000 to your savings by working two extra years. You’ve also leaving your existing savings balance untapped. That could buy you a lot more financial flexibility at various points in retirement, such as if you have to make costly home repairs or run into a string of higher medical bills.
Consider working past age 65
It’s easy to see why Americans may be inclined to land on 65 as their target retirement age. But before you come to that same conclusion, consider the benefits of working a bit longer. You may find that working until your late 60s allows you to put yourself in a more optimal financial position, all the while giving yourself a pretty lengthy retirement to enjoy.
