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Delaying the Golden Years
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For many decades the so-called golden years started in your early 60s. You put in a good 40 years with a company, picked up your gold Rolex on your last day of work, and then spent the next couple of decades relaxing and enjoying the fruits of your labor. Those days are quickly disappearing—in part out of necessity and in part out of choice.
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Necessity is the main driving force as fewer Americans are saving enough for retirement. Additionally, Americans are living longer and may actually spend up to 30 or more years in retirement. That requires a fairly large nest egg to bridge the gap. That's where delaying retirement comes in. By delaying retirement, you shorten the amount of time without economic activity, allow your investments to grow, and can continue to funnel money into your retirement account.
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Now, this doesn't mean you have to work until you drop. In fact, delaying retirement by just a few years can have a significant impact on the size of your nest egg. According to a T. Rowe Price study outlined in the firm's 2010 "Retirement Savings Guide," a person who delays retirement from 62 to 65 and continues to save 15% of his or her salary could increase his or her retirement annual investment income by 22%. Meanwhile, a person who delays retirement by five years and continues to save could expect to see a 39% bump in his or her investment income during retirement.
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Another advantage of delaying retirement is that your Social Security payouts will increase the longer you postpone retirement beyond full retirement age. Depending on your year of birth, the percentage increase ranges from 3% to 8% each year you delay retirement up until you turn 70.
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The benefits of delaying retirement aren't all financial, though. Here are few other reasons you may want to consider it:
- Retain access to health care
Delaying retirement means you can continue to access your employer's health insurance, as Medicare usually doesn't kick in until age 65 (and when it does, it often doesn't provide as comprehensive coverage as private health care). As a result many employees fear that if they retire before 65 they either won't be able to get insurance coverage or won't be able to afford it. In fact, according to a 2010 Towers Watson Retirement Attitudes Survey, 40% of US workers say they're going to delay retirement both out of fear of losing company-sponsored health care benefits and as a result of the losses they sustained during the most recent market downturn.
- Keep your mind working
Because Americans are living longer and fewer people are working in industries that require physical labor, they are able to work longer. Some studies also have shown that those who work longer are generally happier and healthier than those who don't. Additionally, as more and more Baby Boomers retire, companies are expected to try to incentivize older workers to stick around to ensure that their skill sets and experience aren't lost.
- Take on new challenges
If you decide to delay retirement, you don't have to stay in your current job or industry. Some who delay retirement use the opportunity to start a new business, work in a new field, or contribute to the community. By taking on a new challenge, you can maintain an income stream while doing something you love and have perhaps always wanted to do.
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If delaying retirement just doesn't sound appealing, there is another option—working part-time. Often called a phased retirement, you gradually reduce your hours or days as you enter retirement. Your employer may also let you work from home or assume the role as consultant that is brought in on an as-needed basis. Most employers recognize the value that seasoned employees bring to the table, and thus are becoming much more willing to accommodate them.
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Whether you continue to work part-time or full-time, you should talk to a financial planner about the changes you need to make to your retirement account and contribution rates as you approach retirement. Generally, you should be reducing your allocations to stock as your near retirement. However, if you know that you are going to be delaying retirement, you may some degree of stock exposure to ensure your account is at least keeping pace with inflation.
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