Investing

A Changing Definition of ‘Retirement Age’

Rather than stepping away from the workforce as that 65th birthday approaches, a growing number of professionals are doing the exact opposite.

by Rachel Hartman - March 19, 2018

The definitions of retirement and retirement age seem to be changing. The majority of Americans age 50 years or older either plan to work beyond age 65 or are already doing so, according to a recent study by The Associated Press-NORC Center for Public Affairs Research.

For those electing to delay retirement for a few years, options abound. “This is a time to try on different hats,” says Kerry Hannon, a career transition expert and author of What’s Next? Finding Your Passion and Your Dream Job in Your Forties, Fifties and Beyond. Those options include continuing to work at your current organization on a full-time basis, stepping into a part-time position, looking for seasonal work, or even trying out a new career.

Regardless of the type of job you choose, staying employed longer can create substantial advantages — for your portfolio, future Social Security benefits, and overall health.

More time to build wealth

“One key benefit is the chance to continue to save longer for retirement,” notes Donna Peterson, Retirement Income Strategist for Wells Fargo Advisors.

You might be able to keep contributing to a 401(k) plan through your company. Furthermore, using your current income to cover expenses allows you to delay taking disbursements from your investments, thus enabling your portfolio to continue to grow.

Staying employed longer can create substantial advantages — for your portfolio, future Social Security benefits, and overall health.

You also may save money on one of the biggest expenses in retirement — health care. Generally, you become eligible for Medicare at age 65. If you’re under age 65 and your employer provides your health insurance, you won’t need to purchase coverage on your own. “Continuing to work at least until age 65 can be a bridge to Medicare,” explains Peterson.

Certain perks, such as life insurance or dental benefits, might continue through your current employer as well.

Social Security implications

While most individuals can begin to receive Social Security benefits at age 62, waiting can bring a number of advantages.

  • Each year that you wait results in an increase in your monthly benefit, up until age 70. In most cases, if you work until your Full Retirement Age (as defined by the Social Security Administration), you can expect your full benefit. And “if you delay to 70, you’ll get your highest benefit,” explains Peterson.
  • Social Security benefits are generally based on your highest 35 years of working income. “Later in your career, you’re likely earning a higher salary. Replacing a lower earning year among those 35 years with a higher earning year may increase your Social Security benefit,” notes Peterson. Additionally, if you spent time out of the workforce at one point to raise a family or care for a relative, staying employed longer may also help increase your future benefit.
  • The best time to claim Social Security will depend on your particular situation. If you’re married, you’ll want to consider benefits for your spouse, as well. Sitting down with a Financial Advisor who can model different scenarios using a proven Social Security Calculator can help you get a clear picture of the impact working longer might have on your future Social Security benefits.

A healthy outlook

Beyond the financial, there appear to be other benefits to extending your work life. Individuals working past age 65 may live longer, according to a study from Oregon State University. Researchers noted that factors such as social benefits in the workplace might lead to a longer lifespan.

Continuing to work may also help you stay mentally sharp, says Hannon. You might find meaning and purpose in your role, especially if you are mentoring a younger member on your team.

As you look at what’s next for you, staying flexible will allow you to find a role that ideally fits your lifestyle. There’s no right or wrong answer. You might try a position for two or three years and then switch to a different area, explains Hannon. “Think of it as a patchwork quilt.”

Rachel Hartman is a freelance writer who covers small business and personal finance topics. Her credits include Industry Today, MyBusiness Magazine, Bankrate.com, InsuranceQuotes.com, and many others.

Image by iStock