One of the biggest questions that many retirees have as they approach retirement is whether or not to stop working or to work for another year. Financial experts have even coined a term for this and call it the “work one more year syndrome” as it’s so prevalent. In some cases those nearing retirement go through this syndrome as they fear that their retirement savings won’t last and, unfortunately, in many cases that’s true.
Whether or not you have sufficient funds to retire is one of the main reasons to keep working longer and below you’ll find a number of others as well as some suggestions and advice that will help you to determine whether you should stay in the workforce for another year or get out while the getting’s good. Enjoy.
One thing to consider is adding an income stream during retirement that doesn’t take too much effort. Frankly, there are many who believe that retirement means that they’re going to completely stop any and all of their activities that create income but, in many cases, retirement opens the door to making a bit of income on a side. From investing in real estate and becoming a landlord to turning your hobby into an income generating activity, there are plenty of ways to generate a few bucks to keep from having to take money out of your nest egg and stretch your retirement funds a bit further. If you can do this, you may not need to continue working for that extra year.
By building a reasonable amount of cushion into your plans you may well be able to retire now rather than later, sure, working another year means that your retirement nest egg will be bigger but, if you develop a detailed budget now and identify those areas where you could considerably cut back on spending, you may be able to forgo working at extra year and get started on your retirement now. The fact is, while working longer is certainly a conservative plan for retirement, there are many other plans that work just as well. You also need to consider where you are storing the cushion. A TFSA VS RRSP is probably the way to go. A tax free savings account allows your savings to enjoy tax free growth, tax free withdrawals, as well as the ability to redeposit the money as you choose. A registered retirement savings plan just doesn’t enjoy the same tax benefits as a TFA.
Understanding how the 4% rule works and creating a plan based on it is definitely a must. While it’s easy to understand that withdrawing 4% annually is generally a sustainable plant, very few people know the actual intricacies behind this financial rule of thumb. Having a clear understanding of how future changes will affect your portfolio, knowing the asset allocation that’s going to be used, as well as knowing how all of these numbers are calculated will help you to determine whether or not retiring now is an option or if working another year is going to be a necessity.
The more flexibility that you have with withdrawals the better chance that you’ll be able to retire sooner than later. The fact is, you can greatly improve the chance that your nest egg will never be depleted simply by keeping track of the market and suspending the inflation increase when they don’t cooperate. This goes against the 4% rule that assumes that a retiree will start withdrawing a fixed amount immediately and then increase their withdrawals by inflation, even if the market goes south. Fortunately this can usually be accomplished by cutting back on some parts of your budget temporarily and, in most cases, you won’t even notice the sacrifice. If you do it right, working an extra year will probably not be a necessity.
The fact is, it’s always best to be optimistic about the future and, even though future returns might not be as good as a used to be, your portfolio will generally do fine as long as you don’t have the unfortunate circumstance of retiring during the same time that the market is going through a significant downturn. If you’re flexible with your spending you can always find another job if this happens but, in most cases, if you’ve done your planning correctly and the market is looking good, retiring now is probably not a bad idea.
The fact is that nobody knows for sure if their retirement nest egg will last them for the rest of their life. With that in mind, taking a few precautions now and, if need be, working an extra year to build that retirement account up may mean the difference between living your retirement in style or not.
By familiarizing yourself with some of the strategies that we’ve gone over above you’ll be able to weather any unforeseen events that occur and, as soon as you hit that wonderful retirement savings goal, you’ll be able to quit your job and start enjoying those golden years if you choose to.