3 Pros and 3 Cons of Retiring Late

High inflation and a potential recession are forcing millions of Americans to consider pushing back their planned retirement dates. Considering the climate, it’s not hard to understand why.

Retiring late comes with both benefits and drawbacks, though. Your decision will affect every aspect of your golden years, from your income and taxes to healthcare and quality of life.

There’s a lot to consider, and your decision will have irreversible consequences, so think about the following pros and cons before you choose to retire late.

The most obvious benefit is that retiring late gives you more time to stuff money into your retirement fund while reducing the number of years you’ll have to make it last. Starting at age 50, the IRS allows workers to sock away extra income in tax-advantaged retirement accounts through catch-up contributions.

In 2024, that’s an additional $7,500 on top of the standard $20,500 maximum 401(k) annual contribution. Just a few extra years of that can add a whole lot of cushion to your nest egg.

On the other side of the coin, jumbo 401(k)s and traditional IRAs can give their owners a very unpleasant surprise known as a tax bomb. Since those accounts are filled with pre-tax earnings, withdrawals are taxed as regular income — and there’s no avoiding it.

At 73, you must start taking required minimum distributions (RMDs) or face a harsh 50% penalty. RMDs are based on your age and life expectancy, so older retirees with bigger nest eggs face bigger RMDs. That can bump them into a higher tax bracket and leave them with devastating tax bills that shrink their once-healthy nest eggs.

If you claim Social Security before full retirement age — 67 for most people — your benefits will be reduced, and your monthly payments will be smaller. But if you hold out, your payments will grow by 8% for every year you wait, thanks to delayed retirement credits.

The credits stop at age 70, but if you wait until then, your supersized Social Security checks could go a long way in offsetting a tax bomb that you might not have planned for.

Money is a big part of retirement, but so is the most finite resource of all — time. Every year you wait is one you don’t spend doing whatever it is you dream of doing in retirement. With age inevitably comes declining health and reduced physical and mental capacity to enjoy life.

If you dreamed of starting a business, you’ll have less time to work on it and grow it. If you plan to age at home, the older you get, the harder home maintenance will become.

Yes, you should save as much money as possible, but the fear of not saving enough can lead to what some call the “one more year” syndrome. That’s when financial fears compel workers to delay retirement until they no longer have the time or capacity to enjoy the money they spent all that time saving.

People who retire early often find themselves in a dangerous and expensive healthcare purgatory — they lose their employer’s insurance plan, but they’re not yet eligible for Medicare. That forces them to shop for private insurance — marketplace or otherwise — which is generally far more expensive than both of the alternatives.

Those who retire later can transition seamlessly from an employer-sponsored plan to Medicare.

Even though older retirees have more time to save money, there’s a good chance that it might not be enough.

According to recent T. Rowe Price data, many more Americans retired during the COVID-19 pandemic than expected. However, by March 2022, over 1.5 million retirees had already returned to the workforce. The survey found 48% went back to work for financial motivations, while a close 45% cited the social and emotional benefits of staying active as their prime driver.

The problem is, according to the AARP Foundation, in the post-pandemic world, older Americans — particularly older women — face longer odds of getting hired than any other demographic. When they do find opportunities, they’re often for low-wage menial work that doesn’t match their skills, experience or salary requirements.

The longer you wait to retire, the more challenging it will be to find meaningful opportunities if you do decide to go back to work.

Laura Beck contributed to the reporting for this article.