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Retire Now or Later? A Debate 

Sticking around can improve your financial situation, but is it worth it?

The Center for Retirement Research at Boston College published a brief last year titled, “Do Men Who Work Longer Live Longer? Evidence from the Netherlands.” The study was based on a policy introduced in 2009 in the Netherlands that provided the incentive of a tax credit for working past age 62. The full study included women, but the brief focused on men because not enough women responded to the tax incentive to provide conclusive results.

Here are two key takeaways from the study:

  • Working longer is a powerful way to improve retirement security.
  • Working longer results in better health—specifically, longer life expectancy.

There was an interesting discussion among readers after last week’s column about the financial value of working a little longer. Here are some of the comments, along with the commenters’ usernames:

42WasEnough: If you entered Covid retirement eligible, but didn't retire and have worked through 2020-2022, are you fully "working" as before? Is the benefit of remaining in place at full salary higher than it was pre-Covid? Is anyone watching anything? While I value and would never change my retirement decision, which came randomly four months before Covid closed the doors, I often wonder if anyone who stumbled into Covid at 65 or older has much incentive to give up that full paycheck.

2nd Grade: I have been working through the Covid era, and now we only have to come into the office one day per week. We all know there are workers and shirkers. I've noticed that the workers are still producing, but the shirkers are still shirking. I planned to retire a few months ago when I turned 60, but I postponed it for now. I'm hesitant to retire into a period of high inflation because my pension doesn't get a COLA until I turn 62. I will reassess at the end of the year. Telework certainly makes this decision easier.

42WasEnough: Good plan. Personally, inflation has had zero net impact on us. As time passes in retirement, I'm getting better and better at leveraging our spending and coming out far ahead vs. working days. Even if I'm paying 100% more for fuel, it's a fraction of my total spend, and I'm paying far less for everything else. I started an experiment on day one with $25K in checking. Because I don't do budgets, I figured, let’s see where the balance goes if the retirement annuity goes in and all spending we do comes from that account. Now, 1.75 years in, the balance is nudging $30K, and that's after three trips to Europe, several home improvements and more.

Soonretired: One reason I postponed until after 62 was the 10% bonus to the pension calculation. It is a bonus no matter how you want to frame it. Yeah, I missed five years of not working, but I got five years of income, TSP contributions and matching, and not a bad job.

Cobra Commander: It's not that much though, is it? Say your high three average salary is $100K for easy math you would get an extra 2%-3% if you had 10 or 20 years, respectively, or $2K-$3K per year. The inflation adjustment is a legit point, it's just hard to get excited about an extra few grand for staying until 62.

42WasEnough: I really should get around to looking at my OPM account, but just roughly, I retired in 2019 under CSRS, and I'm now projecting to have gone from about 80% of 2019 salary to 100% after one partial and three full COLAs. It's quite a bit to get excited about, this year the COLA will boost income by at least $10K.

Jack: If you have a number of years of service and are, say, age 60, it will be hard to walk away if you have, say, 37 years of service. Working that last year to hit 62 will give you an additional 4.7% on your pension. It's hard to pull the trigger on retiring now with inflation if you are under age 62. Three years of high inflation and no COLA could really destroy your pension right off the bat. I think people will retire in place more than ever.

Cobra Commander: Completely agree on inflation, no argument there. Even an extra 5% on the pension (assuming $100K high three again) is only $5K per year, or like $485 per month. Sure it's something, but not enough to move the needle on retirement plans.

42WasEnough: But that $500 a month is low-taxed if taxed at all, has no demands on it. There is no retirement system deduction or Social Security from it. It's a far more valuable $500 than a working $500. If you're debt-free—as you should be in retirement—it's golden.