Early retirement is the goal for millions of workers. However, if you can’t wait to put office life behind you, T. Rowe Price has some unwelcome advice: Stay at your desk a few more years.
Working just a bit longer can dramatically increase your odds of a successful retirement, according to the investment management firm.
Running out of money is one of the biggest fears retirees face. But by working just a few more years, you can significantly reduce this threat.
To illustrate the point, T. Rowe Price recently imagined three scenarios in which a worker retires needing $63,158 in annual income to cover living expenses.
In each case, the retiree lives on a combination of Social Security income and withdrawals from retirement savings. Prior to retirement, the worker earned $100,000 annually and had set aside $900,000 for retirement.
Retirement “success” is defined as not outliving one’s retirement funds. Here are the three retirement scenarios, and the probability of success in each case:
- Retiring at age 62 and 1 month: 68%
- Retiring at age 65: 91%
- Retiring at age 67 (full retirement age): 97%
Working longer can shore up your retirement plan because it allows you to delay both filing for Social Security benefits and withdrawing money from a retirement account.
Taken together, these actions “essentially shorten the amount of time your assets will need to support you in retirement,” according to T. Rowe Price.
In addition, by waiting to file for Social Security, you increase the size of your monthly payment when you do finally begin receiving checks from the government.
For each year that you delay filing after your full retirement age, your monthly benefit will increase by up to 8%, until you reach the age of 70. After that point, your monthly benefit no longer grows, so there is no advantage to waiting until later than age 70 to claim your Social Security benefits.
In a summary of the findings, Judith Ward, a certified financial planner and thought leadership director with T. Rowe Price, says:
“The improvement in this hypothetical scenario illustrates how higher Social Security payments result in better portfolio sustainability over a retirement horizon that could last decades. Delaying retirement is that powerful.”
For more about the value of delaying retirement, check out: