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Four Reasons to Work One More Year

August 08, 2016

After a long career, you’re likely ready to call it quits and start enjoying retirement. But hold on. Staying in the workforce just one year longer could boost your retirement funds in multiple ways.

Here are four benefits you’ll get by working just one additional year:

Bigger Social Security payments. Social Security payments are calculated using the 35 years in which you earned the highest salary. Working one more year at senior-level pay means that higher number gets factored into the calculation, replacing a possibly lower salary from the beginning of your career. And if you haven’t worked 35 years, one more year means one less zero added to your average, increasing your Social Security payment for the rest of your life.

What’s more, working longer could mean claiming Social Security benefits later. If you claim benefits before your full retirement age—which is 66 for most boomers—your payments are reduced. But once you hit 66, your payment amount increases for every year you delay claiming until age 70.

More time to save. In your final year of work, you can max out all the tax and savings benefits that won’t be available to you in retirement. If you are 50 or over, you can take advantage of catchup contributions, saving up to an additional $6,000 in a 401(k) and $1,000 in an IRA. That means you can defer paying income tax on as much as $24,000 in 401(k) savings or $6,500 in an IRA. Because most retirement accounts require earned income, you won’t be able to claim these tax breaks once you stop working. Additionally, an extra year of working means an extra year of employer-sponsored 401(k) matches and health insurance coverage.

Compound interest. Putting off retirement means your savings get one more year of investment growth before you begin drawing them down. For example, if you have $250,000 socked away, and it earns a 5 percent return, that’s an additional $12,500.

Fewer years of withdrawals. Increasing lifespans means many boomers will be retired for 20 to 30 years. Working an extra year is one less year you’ll have to worry about paying for.

While working longer isn’t feasible for everyone, staying put an additional year could help many pre-retirees enjoy a more secure retirement.