When Should You Delay Retirement?

Setbacks happen. Here's how to decide on delaying retirement.

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Scott Holsopple

 I have a buddy who was planning to run a marathon this summer.

He put in a lot of groundwork to build toward it. The training required sacrifice and dedication. Then he hurt his back and had to take it easy for a few months. 

He's better now, but he made a really tough decision: he's delaying his marathon attempt for a year, rather than invite failure, injury and frustration. Between now and next summer, he's revamping his workouts and routine so he'll be able to run.

This makes me think of retirement planning and how people are delaying retirement. In fact, 34 percent of Americans are planning to put off retirement for a few years, according to a recent Deloitte study. Much like my buddy, people are deciding that a little more work may be just the ticket for success.

Do you have a date — or at least year — you're planning to retire? Do you wonder whether you can pull it off or if you'll need to delay? Take some lessons from my friend's marathon story:

Delaying isn't failing. Rather, you're putting yourself in a better position by applying lessons learned. My friend is changing his nutrition and workout routine; you might consider changing your contribution level, investments and how frequently you rebalance your account to maximize the time between today and your new retirement date.

You can't change what you can't change. My friend got injured, and that set him back in his training. Similarly, a market dip can set someone back in their retirement saving. Both cases call for a reassessment of your strategy, but dwelling on the setback isn't helpful.

Sometimes it's the journey — not the goal — that's the fun part. My pal's setback helped him to remember that he loves running — a fact he'd forgotten when he was so focused on training. Likewise, you may enjoy working and be happier working a few more years. Healthier, too. A recent French study showed that people who delay retirement have less risk of developing Alzheimer's disease or other types of dementia.

So how do you decide whether it's appropriate for you to delay your retirement? Do an audit of your financial situation:

  • Decide what you'd like to do during retirement. Do you plan to travel or stay close to home? Do you anticipate relocating? Then estimate your monthly retirement budget. A general rule of thumb you can use is to plan on needing 70 percent of your pre-retirement income to maintain your current lifestyle. Depending on what you what to do in retirement, you may want to plan for more or less to better fit your goals.
  • Use an online retirement calculator to help you determine how much you need to save, given your investment strategy, to fit your monthly budget.
  • After crunching the numbers, if something doesn't add up, you'll have to make adjustments. You may need to change your current spending habits so you can afford to contribute more money to your 401(k)and other retirement accounts, reduce your expectations for retirement or delay retirement by planning to work longer.
  • If you decide that you should delay retirement, know that doing so, even for six months or a year, can be beneficial from three angles: (1) you're not drawing any money from your savings; (2) you can continue to contribute money to your 401(k) and receive an employer match (if available), and (3) your money has more time to potentially grow.

    So you keep working, saving and investing; my pal will keep training, stretching and eating right. Sometimes, taking a step back can get us closer to realizing our dreams.

    Scott Holsopple is the president of Smart401k, offering easy-to-use, cost-effective 401(k) advice and solutions for the everyday investor. His advice has been featured on various news outlets, including FOX Business, USA Today and The Wall Street Journal.