Retirement

Delaying Retirement vs. Saving More: Which Is More Powerful?

Putting off retirement for just one month can make a huge impact, but that doesn't mean you shouldn't try to save more.

Delaying your retirement by 3 to 6 months could have the same impact on your retirement finances as saving an extra 1% of your salary for 30 years, according to a 2018 paper by the National Bureau of Economic Research (NBER).

This means that if you earn an average annual salary of $65,000 from age 32 to 62, working until you're 62-and-a-half could do as much or more for your retirement standard of living as socking away an extra $650 during each of those working years.

This finding may seem counterintuitive to diligent savers who have watched their 401(k) balance grow over the years, and we certainly wouldn't advise you to slack off on retirement saving now that you've heard it. But it makes sense for two reasons.

The power of working longer

First, for every month you delay your retirement, you reduce the number of months you'll need to provide for yourself on a fixed income. And during each of those months, you'll also be able to add an extra month's worth of retirement savings to your account, further boosting its effect.

Second, by delaying your retirement, you've presumably also delayed collecting from the Social Security Administration (SSA). Doing so increases the monthly amount the SSA will pay you when you do collect your benefit later on.

You are eligible to begin receiving your Social Security benefit at age 62. But if you begin collecting it immediately (and you were born after 1960), your monthly payment will be reduced to 70% of the full benefit amount to account for the longer period of time the SSA will be paying you. It's only at your full retirement age (FRA)—67 for individuals born after 1960—that you'll receive 100% of your benefit. If you delay retirement beyond your FRA, you could receive even more. For every month you put off collecting your benefit after age 62, your monthly benefit will go up a fraction of a percent. This increase could be vital for your long-term finances, especially since young people today are already expected to receive less from the SSA than current retirees.

How delaying Social Security payments increases your benefit amount

If you start receiving benefits at age:You will receive this percentage of your full benefit amount:
6270.00%
62 + 1 month70.4%
62 + 2 months70.8%
62 + 3 months71.3%
62 + 4 months71.7%
62 + 5 months72.1%
62 + 6 months72.5%
62 + 7 months72.9%
62 + 8 months73.3%
62 + 9 months73.8%
62 + 10 months74.2%
62 + 11 months74.6%
6375%
63 + 1 month75.4%
63 + 2 months75.8%
63 + 3 months76.3%
63 + 4 months76.7%
63 + 5 months77.1%
63 + 6 months77.5%
63 + 7 months77.9%
63 + 8 months78.3%
63 + 9 months78.8%
63 + 10 months79.2%
63 + 11 months79.6%
6480%
64 + 1 month80.6%
64 + 2 months81.1%
64 + 3 months81.7%
64 + 4 months82.2%
64 + 5 months82.8%
64 + 6 months83.3%
64 + 7 months83.9%
64 + 8 months84.4%
64 + 9 months85%
64 + 10 months85.6%
64 + 11 months86.1%
6586.7%
65 + 1 month87.2%
65 + 2 months87.8%
65 + 3 months88.3%
65 + 4 months88.9%
65 + 5 months89.4%
65 + 6 months90%
65 + 7 months90.6%
65 + 8 months91.1%
65 + 9 months91.7%
65 + 10 months92.2%
65 + 11 months92.8%
6693.3%
66 + 1 month93.9%
66 + 2 months94.4%
66 + 3 months95%
66 + 4 months95.6%
66 + 5 months96.1%
66 + 6 months96.7%
66 + 7 months97.2%
66 + 8 months97.8%
66 + 9 months98.3%
66 + 10 months98.9%
66 + 11 months99.4%
67100%
67 + 1 month100.70%
67 + 2 months101.30%
67 + 3 months102.00%
67 + 4 months102.70%
67 + 5 months103.30%
67 + 6 months104.00%
67 + 7 months104.70%
67 + 8 months105.30%
67 + 9 months106.00%
67 + 10 months106.70%
67 + 11 months107.30%
68108.00%
68 + 1 month108.70%
68 + 2 months109.30%
68 + 3 months110.00%
68 + 4 months110.70%
68 + 5 months111.30%
68 + 6 months112.00%
68 + 7 months112.70%
68 + 8 months113.30%
68 + 9 months114.00%
68 + 10 months114.70%
68 + 11 months115.30%
69116.00%
69 + 1 month116.70%
69 + 2 months117.30%
69 + 3 months118.00%
69 + 4 months118.70%
69 + 5 months119.30%
69 + 6 months120.00%
69 + 7 months120.70%
69 + 8 months121.30%
69 + 9 months122.00%
69 + 10 months122.70%
69 + 11 months123.30%
70 or later124.00%

Don't count on working longer

If you don't mind extending your career a few months or even a year beyond your planned retirement age, that would be a great way to bolster your finances. According to NBER's findings, prolonging your career by just one month will have the same effect as increasing your retirement saving by 1% of your salary during the ten years prior to retirement. But nobody should assume they'll be able to extend their working years later in life or use that assumption as an excuse to defer saving now.

The future is unpredictable, and due to economic downturns, industry changes, accidents and even just general aging, you could be forced into early retirement. That's why we recommend paying down debts aggressively, then saving for retirement as early and as often as possible.

Make a retirement plan and stick with it. Every year or so, check in to evaluate your progress. Then, once you're near retirement age, you can decide if you'd like to—and if you're able to—work a little longer to permanently increase the retirement income you'll have to live on.

Daniel Caughill

Daniel is a Staff Writer at ValuePenguin, covering insurance, retirement and other personal finance topics. He previously wrote about compliance and best practices for K-12 school districts at Frontline Education.