Deciding When to Delay Retirement

Working an extra year or two can give your nest egg a much-needed boost.

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The path to retirement is tricky to navigate, and there's no GPS—or even a road map—to help you decide when to take the off-ramp. Edward Acker, 69, an architect in Fairfax, Va., says he doesn't plan to retire for at least five years: "I can't afford to. I didn't put enough money aside, and we lost a whole bunch of it anyway in the recession," he says. "We didn't have enough money before, so the fact that we have two thirds of nothing is still nothing."

The investments baby boomers hoped would propel them into early retirement are now tying them to the workforce longer. Slightly over 25 percent of Americans between the ages of 65 and 74 were still working in 2008, according to the Census Bureau. And amazingly, 9 percent of adults ages 75 to 84 are still employed. Many of those on the cusp of retirement whose investments were hit hard in 2008 will have little choice but to continue working. About half of all employed adults ages 50 to 64 say they may delay retirement, and an additional 16 percent say they don't expect to stop working—ever, according to a recent Pew Research Center survey.

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Luckily, delaying retirement for even a relatively short amount of time can give your nest egg a big boost. Each extra year in the workforce buys more time for your portfolio to grow and shortens the number of retirement years you'll need to finance. What's more, Social Security benefits increase by 7 to 8 percent for each year a worker delays signing up between ages 62 and 70. "If you can hold off on claiming your Social Security benefits for even one extra year, that is a positive," says Brendan O'Keefe, a financial planner and president of O'Keefe Wealth Strategies in Orleans, Mass. Plus, check amounts are calculated based on your 35 highest-earning years in the workforce. Think about it this way: Each extra year you work in your 60s will cancel out one of the lower-paying years from your 20s, assuming you earn a higher salary now.

Delaying retirement doesn't have to mean working forever. An extra year or two in the workforce may be enough to lift your 401(k) to its 2008 level. For example, a 55-year-old employee who socks away 10 percent of his or her salary in a 401(k) can replace 2008's stock market losses by working for two more years, according to calculations by consulting firm Hewitt Associates. And a 40-year-old who contributes 7 percent of his or her pay need work only one extra year.

[Try these 6 Ways to Maximize Your Social Security Payout.]

Simply erasing 2008's losses isn't enough for those who weren't prepared for retirement before the recession began. Steve Sass, associate director of research for Boston College's Center for Retirement Research, calculated that prior to the stock market crash, the typical baby boomer looking to retire in eight years would need to work between two and four years longer than current retirees to achieve a comparable retirement income. Now, he says it will take workers dependent on investments for retirement income an additional 11/2 to two years at the office to offset retirement account losses. "Instead of retiring at age 63, which is the retirement age of the average person, I would say 68," Sass says.

You may have to work longer, but you don't have to be stuck in a rut. "If the reason that you want to retire is because you hate your job, changing from what you are doing into something you want to do now is probably a better solution," says Carlos Lowenberg, a financial consultant and chief executive of Lowenberg Wealth Management Group in Austin. Almost two thirds of workers who find new jobs after age 51 move into new occupations or industries, and about 24 percent go to work for themselves, according to research from the AARP Public Policy Institute and the Urban Institute.

Remodeling your life. Murray Scureman, 70, of Potomac, Md., traded stressful business meetings as a lobbyist for a hammer and wrench when he started his own home remodeling businesses, Denman Development Group, in 1999. "What got me into it was doing remodeling on my own home," says Scureman, who now works seven days a week and employs five carpenters. "There is something satisfying about seeing a house go up as opposed to shifting everything from your inbox to the outbox."