How Working an Extra Year Can Completely Change Your Retirement

Photo of a senior couple spending their retirement days, gardening in their vegetable garden on a beautiful sunny day.
AleksandarNakic / Getty Images

Once you reach your 60s, you may start asking yourself, “Should I work another year or retire?” The answer to this will depend on a number of factors. However, you shouldn’t overlook the potentially dramatic effect that working just one more year may have on your retirement.


While you may have saved and invested for 40 or more years in preparation for retirement, that one additional year of work is likely to have a greater impact on your retirement savings than you imagine. Here’s a look at some of the effects that extra year may have, including some secrets you should know.

You’ll Earn More Income

The most obvious financial benefit of working one additional year is that you will earn more money. If you regularly max out your 401(k) plan contributions, for example, this means that you’ll be able to sock away another $22,500 in 2023 — or a whopping $30,000 if you are age 50 or older.

Not only does that amount to an immediate boost in your account balance, but if you invest that money for an additional 20 years — as is likely if you are still in your 60s — it may quadruple from this point, thanks to the power of compound interest. That would translate to an additional $120,000 20 years down the road, which seems like a nice bump for just one additional year of work.

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You’ll Benefit From Additional Employer Matching Contributions

Just as that one additional year of work affords you the opportunity to build up your own 401(k) balance, if your employer offers matching contributions — as many larger ones do — then you’ll get another year of “free money” to boot.

Your employer matching contribution may amount to thousands of dollars for just a single year, which would translate into perhaps $10,000 or more if you keep it in your retirement account for an additional 10 to 20 years. This is money you will be simply passing up if you decide to retire instead of working another year.

You’ll Boost Your Social Security Benefit in Potentially Two Ways

Your Social Security benefit is based on two primary factors: how much you earn and at what age you file for benefits. If you work just one additional year, you can potentially improve the income you receive from Social Security on both counts. 

The SSA bases your benefit on your highest 35 years of earnings. If you are in your peak earning years in your 50s and early 60s, as many Americans are, one additional year of income may kick out a lower-income year that exists in your work record. This will ultimately increase your monthly Social Security benefit for the rest of your life.

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If working an additional year also delays the age at which you file for benefits, your checks will increase yet again, and perhaps by a significant amount. Waiting to file for Social Security at age 68 instead of 67, for example, will boost your payout by a whopping 8%. That’s a permanent increase to your monthly check that will last for the rest of your life.

For instance, if your “full” retirement benefit at age 67 is $2,000 per month, waiting until age 68 will raise that monthly benefit to $2,160, an increase of $1,920 per year. That can add up to tens of thousands of additional dollars over the course of your lifetime on top of the added amount you will receive from having earned an additional year of income.

You’ll Reduce the Number of Years You Need To Fund in Retirement

The number of years that funds need to last is an often overlooked aspect of retirement planning. For example, many old-time retirement planners suggest that if you retire at age 65, you might only need to finance 15-20 more years. But the reality is that many Americans are living 30 or more years in retirement, and that needs to be factored into your calculations.

One of the hidden benefits of working one additional year is that you will be shortening the length of time you will need your money to last by that same one year. If you think you’ll need, say, $50,000 per year of retirement, that theoretically amounts to $50,000 that you can use earlier in retirement.

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Your Earnings Will Compound for an Additional Year

If you work for an additional year, it gives your retirement savings 12 more months to compound. That may not seem like a big deal, but seeing the numbers in black and white may astonish you. 

Let’s say you have a $500,000 nest egg tucked away but you work one extra year and earn 7% on your invested money. That $500,000 will turn into $535,000 — or $536,145 if you compound monthly. That’s an extra $35,000 or more in your retirement fund just for working an additional year, plus you’ll have the added benefits outlined above.

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