Would You Delay Retirement For $1 Million?

Retired Couple w RV 09 1214How about $2 million?

What if you knew, with a high level of certainty that delaying retirement, even by just a couple of years, would result in a significant increase to your retirement assets over time? Would you do it?

In a previous blog post, Why 70 is The New 62, I explain this concept in more detail. Today, I would like to share with you a story about a client experience I had not long ago that illustrates this point.

Sharon and Steve

I recently updated a financial plan for my clients, Sharon and Steve (fake names but real people, of course). Steve has a good job with a pension and a retirement plan. Sharon has a 401(k) with a company match. Both are in their mid-50’s and they contribute about 15% of their income to their retirement plans each year. All combined, their retirement and investment accounts are worth about $1 million.

Their goal is to retire at age 65. A secondary goal, if possible, is to leave something for the grandkids.

On the first go-through, it looked like Sharon and Steve would run out of money at age 90. Considering that nearly 25% of baby boomers can expect to live into their 90’s, that was unacceptable.

By delaying retirement to age 67, just two short years, Sharon and Steve’s investments are projected to be worth nearly $1 million dollars more at age 90 than they would have been had they retired at age 65. That’s a big difference.

Why so much?

I did a double take the first time I saw the numbers. It seemed too hard to believe that delaying retirement by just two years would result in over $1 million dollars down the road. So I reviewed the financial plan inputs. They were correct.

The reason why Sharon and Steve’s assets grew so much is that by delaying retirement they gave themselves two more years for their nest egg to grow, two more years in which they could add to their retirement plans, and two fewer years in which they had to live off those savings. This doesn’t even count the increased income they may get by delaying their social security benefits by two more years.

True, after accounting for inflation, $1 million in 2047 won’t be worth what it is today. But even after adjusting for inflation, it’s still a pretty big number. It’s definitely a lot more than the original projection of $0 at age 90, which after adjusting for inflation over 30 years is still worth, well, $0. At least that’s what my fancy HP12-C tells me.

No guarantees

Like all retirement plans there are a lot of assumptions in the above numbers. And no guarantees. I am assuming that investment assets grow between 2% and 4% above inflation, and that the market cooperates over the next 5-10 years. I am also assuming Sharon and Steve remain in relatively good health, avoid nursing  homes, stay married, don’t have adult children or grandchildren that ask them for money, that their pension and social security benefits remain unchanged, the sun still rises, and that neither of them gets hit by a buss next week.

Update your retirement plan now

There are a lot of variables and moving parts to a good retirement plan. One of the few variables that you may be able to control is when you retire.

If you would like to update your retirement plan, get a second opinion or your current plan, or would like to create a customized retirement plan for yourself, just ASK MIKE. Now that’s something you don’t want to delay.