A recent Edward Jones survey showed that over 60 million Americans are reconsidering their retirement date. Many who have planned to retire as scheduled will remain in the workforce longer than expected because of plummeting retirement savings – especially those who have tapped into their retirement savings for urgent financial needs.
This brings up a question: How long should you delay retirement in light of the current crisis?
According to data from the Edward Jones survey, the average answer to this question is 3.3 years. However, this answer is not finite. It could be longer or shorter for any individual, depending on how the COVID-19 crisis has affected your finances.
Here are some of the factors to consider when you’re deciding whether to retire or continue working.
Why You Should Consider Delaying Retirement
Delaying retirement offers you the opportunity to shore up your retirement account. An extra year in the workforce means an additional year of retirement contribution. This could amount to thousands of dollars.
Delaying retirement also has the advantage of giving your retirement savings more time to grow. Many retirement accounts are down currently, and moving retirement for a year can provide sufficient time for it to recover and rise in value again. You’ll also earn more in compound interest by delaying your retirement.
Additionally, it can reduce your retirement costs. For instance, if you are expected to retire at age 65 and spend $50,000 annually in retirement expenses, moving your retirement by a year would save you $50,000.
Finally, delaying retirement can also make you earn more in Social Security. You can start withdrawing Social Security benefits as early as age 62. However, waiting until you are 67 years old will increase your benefit.
How Long Should You Delay Retirement?
The question of how long to delay retirement depends on your financial situation. You need to factor in how much you have and how far your retirement savings have diminished since the pandemic.
The best place to start is to recalculate your retirement costs. Make out the value of your retirement plans. If you have multiple accounts, write them out. Then recalculate how much you’ll spend in retirement annually. You can still use figures from your previous calculations.
Next, plug these figures into a retirement calculator alongside your chosen retirement age and life expectancy. The calculator may ask you to input the estimated annual rate of your investment. Use 5% or 6% annually. It may turn out higher, but it’s best to be realistic with your investment since no one can predict how long this economic decline will persist. The retirement calculator should tell you how much you must save monthly for the period to achieve your goals.
If you can afford to save that much, then there’ll be no point in delaying your retirement. However, if the monthly savings aren’t feasible, you should consider working for a few more years to earn more.
Tweak the numbers on the calculator until you get new monthly savings to estimate that you can afford it. Once you get this, start saving according to plan. Always check periodically to ensure you’re still on track.
There are several variables to consider in retirement; the COVID-19 situation has complicated retirement even more. However, it shouldn’t deter you from working towards a comfortable retirement.