Retirement is one of the most significant life decisions, especially for individuals who have spent decades building their financial security. However, for many, the decision to retire now or work one more year can feel overwhelming. This choice carries both financial and personal implications, and understanding its impact is key to making the best decision.
Let’s explore this through the story of Kurt and Eva, a couple in their late 60s, navigating this very question. Their journey highlights the financial benefits of delaying retirement, as well as the often-overlooked personal costs.
Kurt and Eva’s Retirement Goals and Challenges
Kurt and Eva, both 67 years old, have worked hard to secure their future. They have $1.2 million in investments spread across 401(k)s, IRAs, and other accounts, as well as a fully paid-off home worth $870,000. Their retirement dream includes spending $8,000 per month, with $6,000 for core expenses like utilities, property taxes, and groceries, and $2,000 earmarked for travel.
However, their health is declining, and they’re eager to begin traveling while they still have the energy. This urgency has made them wonder: should they retire now or work one more year?
From a financial perspective, delaying retirement has clear advantages. Continuing to work would allow them to save more, delay claiming Social Security (increasing their benefits), and let their investments grow for an additional year. But the personal cost of staying in stressful jobs could further impact their health and reduce the time they can enjoy the active retirement they envision.
Financial Analysis: Retiring Now vs. Working One More Year
To help Kurt and Eva, we first examined what their finances would look like if they retired immediately. With $1.2 million in investments, their portfolio could sustain their lifestyle until age 90, assuming a 6.5% annual growth rate. Their Social Security benefits, totaling $5,750 per month, would cover a significant portion of their expenses, and strategic tax planning would keep their tax obligations low in the early years of retirement.
However, their plan wasn’t without risks. The probability of financial success—defined as the likelihood of their portfolio sustaining their lifestyle through age 90—was 83%. While respectable, Kurt and Eva felt uneasy about not having a higher margin of safety.
So, we explored the impact of working one additional year. This single year of work would provide several financial benefits:
- Increased Savings: Kurt and Eva could contribute an additional 10% to their 401(k)s.
- Growth on Investments: Their portfolio would grow for another year before withdrawals began.
- Higher Social Security Benefits: Delaying benefits by one year would result in an 8% increase due to delayed retirement credits.
These changes would increase their probability of financial success from 83% to 93%. For Kurt and Eva, this seemed like a meaningful improvement.
The Overlooked Cost of Delaying Retirement
While the financial benefits of working one more year are undeniable, it’s crucial to consider the personal trade-offs. Kurt and Eva’s health had already suffered due to work-related stress, and continuing to delay their retirement could exacerbate this issue. They also shared that several friends and coworkers had passed away shortly before their own planned retirements, underscoring the uncertainty of life.
Retirement isn’t just about financial security—it’s also about making the most of the time and health you have. For Kurt and Eva, waiting another year might mean sacrificing precious time together and missing out on experiences they had dreamed about.
A Balanced Approach to Retirement Planning
Ultimately, the decision to retire now or work longer isn’t black and white—it’s about finding a balance between financial preparedness and personal fulfillment. To address Kurt and Eva’s concerns, we explored additional strategies to improve their financial security without requiring them to delay retirement.
One such strategy involved adjusting their spending plan. Instead of budgeting $8,000 per month indefinitely, we modeled a plan where their $2,000 monthly travel budget would only last for the first 10 years of retirement. After age 77, we assumed they would scale back their travel, reducing their total monthly spending to $6,000. This adjustment significantly improved their financial projections, increasing their probability of success.
But what if unexpected expenses arise, such as higher healthcare costs in later years? We explored alternative options, such as downsizing their home or tapping into home equity if necessary. These contingencies reassured Kurt and Eva that they had the flexibility to navigate unforeseen challenges.
The Broader Lesson: Prioritize What Matters Most
Kurt and Eva’s story serves as a powerful reminder of the importance of balancing financial and personal priorities in retirement. While financial security is essential, it’s equally important to ensure your retirement aligns with your values, goals, and desired quality of life.
For many retirees, the decision to work one more year is driven by the allure of increased savings and reduced financial risk. However, it’s crucial to recognize the personal costs of delaying retirement—lost time with loved ones, missed opportunities for travel, and the potential impact on health.
When making retirement decisions, consider both the financial and personal aspects:
- Financial Planning: Use tools like probability of success analyses to understand the impact of your decisions on your long-term financial health. Explore strategies to optimize your retirement income, such as adjusting spending patterns or leveraging alternative assets like home equity.
- Personal Fulfillment: Reflect on what truly matters to you. Are you prioritizing time with family, pursuing hobbies, or traveling while you’re still healthy? Don’t let financial planning overshadow these essential aspects of a fulfilling retirement.
Closing Thoughts
Kurt and Eva ultimately decided to retire now, armed with a solid plan to balance their financial security and personal goals. Their decision reflects the delicate balance that all retirees must navigate—maximizing financial security while making the most of the time they have.
For those nearing retirement, their story is a call to action: take the time to evaluate your own priorities and explore how your financial plan can support the life you want to live. By doing so, you can enter retirement with confidence, knowing you’ve made a decision that aligns with both your financial needs and your dreams for the future.
