Financial Perspectives: The pros and cons of delaying retirement

As we move toward the election in November and the debate over which candidate has the best vision for our future, many Northeast Philadelphians are grappling with what their retirement will look like.

The financial collapse of 2008 has left many people in limbo. With retirement savings that have essentially gone nowhere for more than a decade, many people have been forced to delay their retirement. This is especially true for those that will not receive pensions.

A delay in retirement has repercussions – some positive and some negative. First, delaying retirement allows you the opportunity to save more money – remember workers over age 50 are allowed to make up to $5,0000 in qualified plan catch-up contributions beyond the base $17,000 for a total of $22,000.

Second, for each year you delay retirement beyond age 66 (if you are a baby boomer) you can receive 8 percent more in your benefit. The 8 percent growth caps at age 70, but can result in a benefit that can be 32 percent higher than the age 66 benefit. Third, some people feel that working longer helps to keep them young and engaged. There are also studies that show this to be true.

The negative repercussions relate to the physical impact of working at an older age, which is especially true for physically demanding work. Unexpected health issues can force you into retirement before you intended.

Another negative has to do with some employers who may be looking to shed some of their older workers because they are so highly paid. There are laws in place to protect older workers, but there is no denying that this happens. To be fair, there are employers who really value older workers for their experience and work ethic.

The other aspect of older workers deciding to delay retirement has to do with the natural cycle of the work force. With thousands, if not millions, of people delaying retirement, there are fewer jobs for the young workers move into. Many young workers are taking part-time positions or remaining in positions that they may have had while in school.

So, if you are an older worker where does this leave you?

First, you have to take care of yourself. You cannot worry about the impact of your working longer on younger workers if you cannot make ends meet. Second, if you are already suffering from health problems it may not be practical to work full- time. Maybe you can work 15-20 hours per week. This will help with your cash flow needs, but may not provide you with benefits.

Some people decide to retire from their full-time positions and then try to secure a part-time position. It may make more sense to move to a part-time role with your current employer. If you like working with the company, this could be a win-win for you and your employer. If you are 65 or over, you are eligible for Medicare and can transfer to this coverage from your employer plan (do not forget the need for a supplemental health plan).

One thing that we did not discuss above was that if you really need the money from Social Security to help cover your bills, it may not make sense to wait until age 70 to start taking your benefit. If you start taking your benefit at age 66 you can earn as much as you want without affecting your benefits.

The views expressed are not necessarily those of Cambridge and should not be construed as an offer to buy or sell any security.

Jim Heisler, CFP®, CDFA™, CASL™ Family Wealth Services, LLC 8725 Frankford Avenue Philadelphia, PA 19136 jim@familywealthservices.net 215-332-4968

Jim Heisler is a Certified Financial Planner with Family Wealth Services in Holmesburg. You can read all his Financial Perspective columns here.

Good luck with your planning!