Will working longer and deferring retirement allow me to have more money when I finally retire?
Question: I’m 54 now and was originally planning on retiring at 65. My 401K took quite a hit a few years ago and now I’m wondering if I should be postponing my retirement.
Boston Money Coach Answer:
They say that time heals all wounds and sometimes it even helps salvage a 401(k) as well. You may be able to replenish your retirement funds given the time frame you noted. It really will depend on a number of factors: how much you set aside from each paycheck, the amount of any company match, the mix of investments you choose, and the performance of those investments over time.
If you are not saving the maximum or you have no company match, you’re not going to get to your money goal very fast. Maybe you’re gun shy from having taken a beating in the market so you’re only socking away the money in a “stable value” or money market type fund. While that is a “low volatility” choice, it certainly isn’t without it’s own risks. One of the biggest is that the returns from such funds may likely not match inflation. And in retirement, inflation is one of your biggest enemies since a dollar now is worth less and buys less than a dollar in the future.
If you are selecting the “best performing” mutual funds, you may find that you are chasing past performance. Last year’s winners may not be the same for this year.
You need to consider your appetite for risk (which generally tends to be less as you age and try to recover from the beatings received from the market over the past few years). You may want to try the risk tools available at www.RiskProfiling.com. For a nominal fee you’ll have a good measure of your risk that you can use in conjunction with your advisor.
Armed with that information you can then be better prepared to select investments that may help you rebuild your nest egg. Asset allocation is still one of the best ways to reduce overall risk in a portfolio (but it never means that your account will never lose value at any given time). To find an asset allocation that is appropriate for you, speak with an advisor (consider one from BrightScope or Paladin Registry). Or use the tools available at Morningstar.com or www.myplaniq.com.
What matters more than the amount of cash you’ll have when in retirement but how much you’ll need. This will depend on your lifestyle, your debts and your health. If you have low debts and no mortgage, you’ll have more cash flow for living expenses. If your company does not provide for retiree medical insurance, you’ll need to budget for that as well – not an insignificant expense.
The other issue in this equation will be Social Security. By delaying retirement, you’ll build credit for a higher monthly benefit. There are even specific strategies for when to claim Social Security that may improve and maximize your total benefits. (Check out the tool and link available here for more information).
If you’re looking to put hard numbers to your question, you can try the Free Retirement Report tools available at this website as well.
Ultimately, it’s not how about how much money you have but about the life you want. If you are happy and enjoy your work, stay active. There’s nothing that says you have to retire by a certain age if you can still do the job (except if you’re an airline pilot and forced to retire). If you’re not happy, then why stay? If you can readjust your view of the lifestyle you’ll have in retirement, you can certainly find ways to afford it especially if you take the time to plan for it.