Many people choose to work just a few years longer before fully retiring as they discover the benefits of this option. Working longer means you’ll earn more money and contribute more to your 401k or other retirement savings accounts. This matters when you realize that failing to save enough is a problem most retirees do face.
Improve Your Social Security Payments
The amount you receive in Social Security benefits upon your retirement will be based on the 35 years you earned the highest salary. However, if you haven’t been working, a zero will be averaged into that amount. You can avoid this possibility by working a few years longer. If you’re earning a higher salary now than you have earned in the past, this will increase the amount of your total average earnings to help you qualify for higher benefits.
Save More Money
Even if you work just one year past retirement age, you’ll have an additional 12 months of earning a salary to support yourself. You’ll also be able to save more for your retirement throughout that year. Since people over the age of 50 are able to make catch-up contributions into their 401k and IRA accounts, you can give your retirement wealth a significant boost in that extra year of working. Throughout that year, you’ll also maintain the health and vacation benefits provided by your employer.
Keep Earning Compound Interest
The savings you do have will continue to earn interest as you work through that extra year. If you have $250,000 in savings and earn 5% in interest, you’ll end up with an extra $12,500. You can continue to grow those savings year by year if you choose to work a little longer. You’ll also be withdrawing for fewer years, which means you’ll go through your savings a little slower.
Conserving your retirement savings and growing your wealth simultaneously can benefit you at both ends of the equation.
Regardless of your age, it’s never too soon to start saving for retirement. If your employer offers a 401k program, you should join it as soon as you’re eligible. Otherwise, explore your options for IRA, self-directed IRA, or other retirement investment accounts. Getting started now will help you build the wealth you’ll need later in life.
