Is Working 5 More Years Worth It? Here’s What the Math (and Your Health) Says
Retiring now is tempting, but five extra years of work offer major perks. Here is how to weigh the health and financial trade-offs.
Want to retire now, but not sure you’re ready to call it quits? Before you leap, consider what working another five years would mean to your retirement, both financially and emotionally.
Working an additional five years means more time to save and grow your nest egg. But it also means less time to spend with loved ones or to pursue your retirement dreams. Far too often, when planning for retirement, the focus is solely on savings, but your health and well-being matter just as much.
"If the goal is to leave work and start living life in a way you couldn’t before, then by all means, do whatever brings you the most enjoyment," says Jaime Ruff, CFP, Principal at Homrich Berg. "But you have to be careful not to retire before you are sure you can. It's hard to establish income and hard to get a job back at the level you were."
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To help you figure it out, here are six reasons to keep working and five reasons it might be time to step away.
6 reasons why it makes sense to keep working
1. Your nest egg continues to grow
As you work and continue contributing to your retirement savings, your account balances grow. Savings remain invested, compounding and growing. To see how much you could save in five years, check out our savings and retirement calculators.
Workers over age 50 can contribute thousands of extra dollars per year to 401(k)s and IRAs in catch-up contributions, which makes those final five working years disproportionately powerful for compounding. (And workers aged 60 to 63 can make "super catch-up" contributions.)
2. Avoid sequence of returns risk
If you retire when the markets are down, you can experience sequence of returns risk, which occurs when bad investment returns deplete retirement savings early on, putting you at risk of running out of money later. If you work five more years, the markets have time to recover, and your portfolio has time to recoup the losses.
3. Higher Social Security benefits
The longer you delay claiming Social Security benefits, the bigger your monthly payment will be. Payments increase 8% each year you delay past your Full Retirement Age (FRA) up to age 70.
4. Greater income potential
If you work longer, you might continue to get raises or promotions. More money means a larger nest egg.
5. Save on healthcare costs
Medicare, which covers about 80% of healthcare expenses, doesn’t kick in until age 65. Before that, you're on the hook for healthcare costs if you don’t have employer-provided insurance.
That could set you back around $1,800 per month (for unsubsidized individual or family healthcare costs), depending on your age, health and where you live, according to Value Penguin.
6. Better well-being
Unless you're stressed out, hate your job or it’s too physically demanding, working longer might be good for your health.
Studies have shown it can help keep your brain healthy, reducing the risk of dementia. Working tends to be social and gives people a sense of purpose. You give that up when you leave the workforce. This effect is especially true for men.
All that sounds great, but it’s only half of it. A lot can happen in five years that could cause you to regret not retiring sooner.
5 reasons why you should retire now
1. Your health suffers
Everyone thinks they'll live a long time, but sometimes your health can suffer, limiting your ability to travel, pursue hobbies or engage in leisure activities.
2. You might miss out
You might be able to work forever, but what if you miss out on time with family, opportunities to meet new people or the travel you always dreamed about?
3. Work stress can lead to burnout
If your job is high-stress or the workload gets taxing as you age, it can lead to stress and burnout.
4. Health issues related to the job
Work may protect brain health and offer a sense of purpose and community as you age. However, working long hours or at a physically demanding job can lead to both physical and mental health issues.
5. Your loved ones need you
It may not be your health, but that of a loved one who is suffering, causing you to retire to care for them.
Define your retirement
Still on the fence about whether you should work five more years? Defining your retirement in light of new retirement rules can help you decide when to leap.
Are you completely retiring, drawing down from savings, and collecting Social Security? Or do you aim to be a consultant or do something less time-consuming? If you plan to stop bringing in a paycheck and can afford it, retiring now may be a no-brainer, but if you'll struggle, five more years of work could be in your cards. If you are planning a phased retirement, you can stretch out the decision.
Can you retire now?
Once you figure out what your retirement will look like, assess if you can do it now or if working five additional years is more beneficial.
Harry Drozdowski, a family office strategist with Wells Fargo Wealth & Investment Management, likes to have his clients think of the decision as a traffic light.
Red zone. You don’t have enough money to do what you want. "If you're in that red zone, you'll have to make substantial changes to the quality of your life," says Drozdowski.
Yellow zone. You can afford to retire tomorrow, but you’ll have to make a few small changes. This is where other factors, such as spending time with family or pursuing a hobby, weigh more heavily in the decision.
Green zone. You're good to go, with enough income to do it all. "I don’t think everyone hits the green zone," says Drozdowski. "I like most people to aim for green or yellow."
Don't forget the plan
Whether you should retire now or work five more years is a personal choice that goes beyond financial considerations.
While staying in the workforce longer can grow your savings, increase Social Security benefits and provide a sense of purpose, it also comes with potential downsides, such as health risks, missed opportunities and job-related stress.
Understanding where you stand financially and what you really want from retirement will help you make the right decision.
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