Skip to main content

How Working an Extra Year Improves Your Retirement Finances

By U.S. News & World Report

Working for an additional year can have a significant impact on your retirement finances. A single extra year of work can boost your Social Security payments, give you more time to accumulate retirement savings and shorten the period of retirement you need to pay for. Here’s a look at how delaying retirement for one year can improve your retirement budget.

Bigger Social Security payments. Working an extra year can increase your Social Security payments in two different ways. First, Social Security payments are calculated using the 35 years in which you earn the highest salary. If you earn more now than you did earlier in your life, this year’s higher salary with be factored into the calculation. And if you haven’t yet worked for 35 years, working an extra year will prevent a zero from being averaged into your retirement benefit calculation and dragging down your retirement payouts. “You could replace a zero earning year with a year you have income, which will make your Social Security payment higher for the rest of your life,” says Ryan Thomas, a certified financial planner for Column Capital Wealth Management in Indianapolis.

Second, your monthly benefit payment changes depending on the age you sign up for Social Security. If you start payments before your full retirement age, which is 66 for most baby boomers, monthly payments are reduced. Your payment amount increases if you delay starting benefits after your full retirement age up until age 70. “If you are going to work longer and delay your Social Security takeup, then that could, depending on how old you are, increase your future Social Security benefit you receive each year by between 6 and 8 percent a year,” says Richard Johnson, a senior fellow and director of the program on retirement policy at the Urban Institute . A person eligible for $1,500 per month from Social Security at age 66 could boost his benefit to $1,620 per month if he puts off claiming until age 67, and that higher benefit will last for the rest of his life.

More time to save. You can become a super-saver during your final year of work, tucking away as much as possible for retirement. Saving for retirement can qualify you for a variety of tax breaks. If you are age 50 or older you can take advantage of catchup contributions, which allow you to put away an additional $6,000 in a 401(k) and $1,000 in an individual retirement account, so you could defer paying income tax on as much as $24,000 in a 401(k) or $6,500 in an IRA. Or you could pay the income tax now by saving in a Roth 401(k) or Roth IRA, and set yourself up to get tax-free distributions in retirement. Most retirement accounts require earned income, so you won’t be able to claim these retirement savings tax breaks once you stop working. If your employer provides a match on your 401(k) contributions, you will be able to boost your nest egg even further. “When you work a lot of times your employer helps cover your health insurance costs,” Thomas says. “That’s one more year you are getting company benefits, vision, dental and a company match for your 401(k).”

Compound interest. Delaying retirement gives your existing retirement savings more time to grow. If you have $250,000 in a retirement account and it earns a 5 percent return, that’s another $12,500 added to your nest egg. You could also work an extra year if your investments are preforming poorly and you want to give them some time to recover before you begin withdrawing money from your portfolio. “You ideally don’t want to start withdrawals in a year when your portfolio is down,” says Danielle Schultz, a certified financial planner for Haven Financial Solutions in Evanston, Illinois. “Even if the market is no better in a year you will have put more money into your retirement account and delayed spending for another year.”

Fewer years of withdrawals. If you are currently in good health, you could be retired for 20 or 30 years. Saving up enough to finance several decades of retirement can be difficult. Working an extra year shortens the period of retirement you need to pay for. “Just one year can be really important because it allows you to save more, and it means that those savings don’t have to last quite as long,” Johnson says.

More from U.S. News

10 Social Security Claiming Strategies That Work

10 Ways to Repair Your Retirement Finances

10 Jobs Hiring Older Workers

How Working an Extra Year Improves Your Retirement Finances originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
Read Next Story

Related News

Frustration grows in Venezuela as earthquake death toll reaches 1,430

Israel and Lebanon sign framework agreement with US in ‘first step’ toward peace, Rubio says

Trump-endorsed populist poised to become Colombia’s next president as rival challenges vote