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Should I Work 5 More Years—or Retire?

Updated Sep 03 | 6 minute read

Robb Engen, an advice-only financial planner, offers his two cents on making the call on whether to retire or work another five years.

It's crucial for Americans who are approaching retirement to take an honest look at their current financial situation and future goals to determine whether they're well equipped to retire comfortably. Ideally, this financial planning assessment can take place early enough to give you enough runway to make changes, if needed—think three to five years before retirement.

Consider, too, that for many people, their career is more than a paycheck. Work forms part of their identity and fulfills their sense of purpose. Going from 100% work mode to 100% leisure mode can be a struggle. Finding your new sense of purpose is paramount in retirement.

The definition of retirement can even be flipped on its head when you consider that nearly 25% of men and 15% of women aged 65 and older are still in the workforce in some capacity.¹Meaningful part-time or entrepreneurial work can enhance your lifestyle and potentially add extra spending money to your coffers.

6 Questions To Ask Yourself Before Retiring

If you're debating retirement in the next five years—versus the next year—here's how to evaluate your retirement plan so far to see if you're ready.

1. Can you support your lifestyle?

First, take a realistic look at how much money you'll need to live a comfortable lifestyle in retirement.

In my experience working with hundreds of retirees as a fee-only financial planner, most would like to have the same standard of living in retirement that they enjoyed in their final working years—and perhaps even enhance it with additional funds for travel, hobbies and spoiling their grandchildren.

That's why tracking your spending and determining how much it costs to live your life is important, particularly if you've never implemented or stuck with a budget before. You need to know where your money is going and what your lifestyle costs.

From there, a financial planner can also help you determine your comfortable spending floor as well as your safe spending ceiling (i.e., the most you can spend without running out of money in your old age). That spending range can give you realistic guardrails to stick with throughout your retirement.

Of course, a lifestyle of spending $100,000 per year will look much different than a lifestyle of spending $50,000 per year. Be honest with your capacity to maintain a certain lifestyle—which leads to the next question to ask yourself.

2. Have you factored in all your income streams?

Once you estimate how much money you'll need, add up anticipated income streams—including Social Security benefits, pension payments, 401(k)s, 403(b)s, IRAs and any other savings and investments.

Although eligible for Social Security at age 62, you may receive a 30% reduction in funds for taking early benefits. But if you delay taking your benefits from your full retirement age to age 70, your benefit amount will increase. For example, waiting past the full retirement age of 66 until age 70 can result in as much as 8% more in retirement benefits each year you wait.² If your savings and income streams don't match your goals, it's clearly not time to think about retirement just yet.

Another consideration: Age may come with medical expenses you didn't have before, and Medicare retirement benefits could assist in paying for those bills.

3. Are you prepared to cover large expenses?

Life doesn't simply move in a straight line. In addition to their regular annual spending, retirees will certainly incur one-time expenses throughout their lifetime.

In my experience, these can be lumped into five categories:

Bucket list travel: Think of that dream European river cruise, African safari or bringing the entire family for two weeks to a sunny destination.
Vehicle replacement: It's likely not practical to keep the same vehicle for a 20-plus year retirement. Make sure to budget to save for a new car, as needed.
Home repairs and renovations: Houses need upkeep, and you'll need a contingency fund for both planned and unexpected repairs as long as you remain in your home. Also, consider any desired renovations to make your home more enjoyable or accessible throughout retirement.
Financial gifts to children and grandchildren: It's becoming increasingly popular to adopt a “give while you live" approach to inheritances rather than waiting until the will is read.
Healthcare and medical bills: Paying for unexpected medical bills and long-term healthcare are important considerations for retirees.

4. Will you still have a mortgage?

Homeownership can be expensive, and if you bought or upgraded your home later in your career, you may still be carrying a mortgage payment into your retirement years.

While a paid-off home is often the foundation of a solid retirement plan, it may be perfectly sensible to continue paying a reasonable fixed-rate mortgage in retirement if you have the income to support those payments.

But if you're assessing your retirement readiness five to 10 years away from retirement, you ideally want to align your mortgage freedom date with your retirement date for peace of mind.

Also, consider the possibility of downsizing or selling your home and renting in retirement to unlock untapped home equity that can enhance your lifestyle.

5. How much could you save in five extra years?

Your final working years are a great time to boost your retirement savings. Major financial burdens, such as paying down the mortgage and raising children, should be behind you and those savings can be redirected into your retirement nest egg. Procrastinators also have a final chance to break any bad spending habits and set their finances straight.

While not a desirable solution, postponing retirement for five years does offer considerable benefits for soon-to-be retirees who need a savings boost:

You'll have more time to earn income and save for retirement.
You'll have fewer years of retirement withdrawals, thus extending the life of your portfolio.
Your investments will have more time to grow and compound.

Remember that your 401(k) is just one retirement account. If your personal finance plan includes multiple retirement accounts and savings accounts, mutual funds, certificates of deposit (CDs) and investment portfolios, your final retirement savings could be even larger if you work as long as possible.

6. Would you miss out on catch-up contributions?

The government offers catch-up contribution options for most retirement accounts for those approaching retirement age. At age 50 you will typically qualify to put more money away into tax-deferred accounts.³

If you're thinking about retiring this year, you may want to consider how working five more years could lead to tax benefits. For instance, you could max out your 401(k) and rake in company matching funds. If you don't have an IRA, open one and contribute the max allowed.

Retirement Readiness Checklist

Look at fixed expenses. Consider expenditures on your ledger today, such as food and shelter.
Estimate extra costs that come with aging. You could face increased medical bills (but be sure to factor in Medicare) or need to hire extra help around the house, such as a lawn care service or a personal shopper for groceries.
Factor in fun. Yes, budget for property taxes and daily living costs, but don't forget to budget for your travel and hobbies.
Plan for a long retirement. Use the Social Security Administration's Life Expectancy Calculator to forecast how long you need your money to last. One of the biggest retirement risks is underestimating how long you'll live.
Take inventory of assets. Now that you have an estimate of how much you'll need in total and your fixed expenses, analyze the value of your current assets across your 401(k), IRA, investment portfolio, etc. and see if the numbers match.
Consider downsizing or moving. You might consider selling the five-bedroom home and paying cash for something smaller. You could even relocate to a town with a lower cost of living. Or rent!
Pay it off. Make it a goal to avoid having a mortgage payment in retirement.
Contribute the most. Max out your contributions to retirement accounts, especially if you qualify for catch-up contributions. Also, try to max out any employer matching programs and consider an IRA.

Get Retirement-Ready

Retirement readiness is about more than just crunching the numbers. It's about what you're retiring to, not just what you're retiring from.

Some research has suggested that retirement could lead people to feel aimless and lost. However, retirement may actually provide an opportunity to experience a renewed sense of purpose, especially for those retiring from dissatisfying jobs.⁴

After taking stock of your financial situation, make sure you know exactly how you plan to spend your retirement years so you can maintain joy and a sense of purpose.

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