John M. Hoffman & Associates CPAs

With the 2008 collapse of the economy and stock market:

• Many people’s retirement and other savings dropped in value by significant amounts.

• Many people lost their jobs or saw their businesses suffer and were not in a position to add to their retirement savings for a period of time.

• Many employers contributed less to retirement plans for their employees. 

All of these factors leave the average worker (particular baby boomers) with retirement prospects looking less rosy and a little towards the bleak side as compared to prior to 2008. 

With that in mind, the idea of deferring retirement might be the best viable solution. If you have been saving for retirement for 30 years and were planning to retire at age 65, think about what happens when you postpone that for two years:

• You can add 2 more years of savings into your retirement accounts. That should increase the accounts by roughly 5 percent by itself.

• Your accounts have 2 more years to grow. At 5% growth per year, that should increase your accounts by 10%.

• Your life expectancy at age 67 has declined from 21 years to 19.4 years. This means that your retirement savings will need to cover fewer years.

• Your social security benefits will be greater by approximately 12% by waiting two years to commence collecting benefits.

Let’s say that at age 65 you have $1,000,000 in your retirement savings. An annuity paid over your life expectancy of 21 years at a 4% annuity rate would yield $71,280 per year. Social security benefits would be approximately $20,000 per year. This would mean that your retirement benefits would total $91,280 per year and only the social security would adjust for inflation.

If you worked two more years and added $15,000 per year to your retirement savings and such savings grew by 4% per year, without compounding that would add $110,000 to the account, now totaling $1,110,000. The annuity payout at age 67 assuming a 4% growth rate and a life expectancy of 19.4 years would be $83,342 per year. Social security benefits would increase by approximately 12% to $24,000 and your total retirement income would be $107,342 per year, an increase of 17.5%. 

These amounts are hypothetical but the illustration shows the compound effect of everything working in your favor as an option to solve the problem from the meltdown of the retirement and all other savings that most of us have experienced.  

In order to defer retirement, I suggest that you “Love Your Job”!