The impact of saving more, spending less later and benefiting from an extra year or more of compounding can be truly staggering.
When you purchase through links on our site, we may earn an affiliate commission. Here’s how it works.
As a financial planner, I believe in the efficacy of financial planning. One of the core tenets of true financial planning is modeling. Not the kind of modeling that Giselle does, but rather financial modeling. The benefits of financial modeling are plentiful; however, my favorite aspect is understanding what moves the needle.
What do I mean when I say “move the needle”? Well, modeling isn’t perfect because we can’t know everything about the future. What we can control and glean from modeling is the net effect of our decisions. It can reveal if paying off the home early or investing makes sense. What happens if you buy a second home, or pay for all three kids’ college tuition? I really enjoy rolling up our sleeves together and helping decipher the data to make well-informed directional decisions.
The net effect of working one more year is always one of the most interesting things I find about this process. Of course, this is when people really pay attention, since this is when they are most likely to be interested in the age at which they can retire. That said, people are absolutely shocked when they see the net difference of working one more (or each additional) year. The numbers can be staggering — the difference between dying almost broke or with millions of dollars left.
You’re standing at a crossroads. After decades of work retirement is finally within reach. But then that nagging thought creeps in “Maybe I should work just one more year…”
This “one more year” syndrome is incredibly common among soon-to-be retirees. And honestly it’s understandable! The decision to retire is huge, and the financial implications can be staggering – often much bigger than people realize.
I’ve helped a lot of people make this choice, and I want to tell you why that last year of work might be more important than you think, and how to decide if you should take it or leave it.
The Shocking Math Behind Working One More Year
My clients’ jaws drop when I show them the financial picture of working one more year versus retiring now. The difference isn’t just substantial – it can be life-changing.
Here’s why working that extra year can have such a massive impact:
1. You’ll Save More at Your Peak Earning Years
At the end of your career, you’re typically:
- Earning your highest salary ever
- Likely having lower expenses (kids out of house)
- Able to max out retirement contributions
- Possibly making catch-up contributions
This combination means your savings rate during your final working year can be extremely powerful. Many of my clients are able to save $50,000-$100,000 or more in that final year alone.
2. You’ll Spend One Year Less in Retirement
This is simple math but often overlooked. If you plan to live until 90:
- Retiring at 65 = 25 years of retirement spending
- Retiring at 66 = 24 years of retirement spending
If you spend $100,000 a year in retirement, you will need to take out $100,000 less over the course of your life. That’s money that stays invested and working for you!.
3. The Magic of One More Year of Compounding
This might be the biggest factor of all. By not touching your nest egg for another year:
- Your entire portfolio compounds for another 12 months
- You don’t start withdrawals, which preserves capital
- Market gains affect your entire retirement savings
For example, if you have a $3 million portfolio that grows at 10% for that extra year, that’s $300,000 in additional retirement assets before you even factor in new contributions!
What Exactly Does This Look Like?
Let’s put some real numbers to this. Imagine someone with:
- $3 million in retirement savings
- $100,000 annual retirement spending needs
- 10% annual growth (ambitious but illustrates the point)
Retire Today Scenario:
- Starting amount: $3,000,000
- Annual withdrawals begin immediately
Work One More Year Scenario:
- Save an additional $100,000
- Portfolio grows 10% = $300,000 growth on existing savings
- New starting retirement amount: $3,400,000
- One fewer year of spending in retirement ($100,000 savings)
The initial difference is $500,000 ($3.4M vs $2.9M effective retirement capital). But that’s just the beginning – that extra $500,000 will continue compounding throughout your retirement years!
As Andrew Rosen, a financial adviser at Diversified, LLC notes, “The impact of saving more, spending less later and benefiting from an extra year or more of compounding can be truly staggering.”
Beyond the Money: Other Factors to Consider
Financial calculations are important, but they’re not everything. When deciding whether to work one more year, also consider:
Health Benefits
- People who keep working tend to live longer
- Working can contribute to lower rates of dementia
- The social aspects of work benefit mental health
Social Security Benefits
Delaying Social Security benefits can significantly increase your monthly payments. As noted in research, “waiting until past the full retirement age of 66 until the age of 70 can result in as much as 8% more in retirement benefits for each year you wait.”
Happiness Factor
According to research, about 67% of retirees who are 15 years or less into retirement said they’re happier since retiring, and 82% said they’re more relaxed on a typical day. Only 8% report feeling less happy in retirement.
Overcoming the “One More Year” Syndrome
If you find yourself perpetually saying “just one more year” without actually retiring, you might be suffering from what financial planners call the “One More Year Syndrome.”
This condition is often rooted in fear – fear of not having enough money, fear of boredom, fear of the unknown. Here’s how to overcome it:
1. Develop a Concrete Plan
Don’t just vaguely think about retirement. Create a detailed plan that includes:
- Where you’ll live
- What you’ll do with your time
- How much you’ll spend
- What your withdrawal strategy will be
Having a specific plan makes retirement feel real rather than scary.
2. Talk to Other Retirees
One of the best ways to overcome retirement anxiety is to talk to people who’ve already made the leap. Ask them about:
- What surprised them about retirement
- What they wish they’d known beforehand
- How their finances have worked out
- What they enjoy most about retirement
3. Visualize Your Retirement
Take time to really imagine what your retirement will look like. What will you do on Monday morning? Where will you travel? Who will you spend time with? This mental exercise helps make retirement concrete rather than abstract.
4. Consider a “Trial Retirement”
If possible, take an extended vacation or sabbatical to test-drive retirement. This can help you:
- See if you actually enjoy having more free time
- Identify potential issues before they become permanent
- Develop routines and interests outside of work
Finding Middle Ground: Partial Retirement
Joe Duran, Head of Goldman Sachs Personal Financial Management, suggests that finding a middle ground between full work and full retirement might be the solution. Options include:
- Part-time work at your current employer: Negotiating reduced hours while keeping benefits
- Consulting in your field: Leveraging your expertise without the full-time commitment
- Seasonal work: Working part of the year and taking extended time off
- “Barista FIRE”: Taking a low-stress, part-time job just for some income and structure
These approaches give you both financial benefits and more freedom.
Making Your Decision: A Practical Checklist
To decide whether to work one more year or retire now, ask yourself these questions:
-
Can I financially support my desired lifestyle? Be honest about your retirement budget and withdrawal rate.
-
Have I paid off high-interest debt? Ideally, you should retire with minimal debt, especially high-interest debt.
-
Do I have a plan for healthcare costs? Medicare starts at 65, but you need a plan if retiring earlier.
-
Is my portfolio properly positioned for retirement? Your asset allocation may need adjusting before retirement.
-
Am I emotionally ready to retire? Work provides structure, purpose, and social connection – have replacements ready.
-
What would I regret more? Working one more year when you didn’t need to, or retiring too early and facing financial stress?
The Bottom Line
Working one more year can have an astonishingly large impact on your retirement finances – often much more than people realize until they see the actual numbers. The combination of extra savings, one less year of spending, and another year of compounding can mean the difference between just getting by and thriving financially in retirement.
However, money isn’t everything. Your health, happiness, and how you want to spend your limited time on earth matter tremendously.
As a financial planner colleague once told me, “Nobody on their deathbed ever said ‘I wish I’d spent more time at the office,'” but they also don’t say “I wish I’d spent my retirement years worried about money.”
The right decision varies for everyone based on their unique circumstances. But understanding the true financial impact of that one extra year can help ensure your decision is well-informed rather than based on vague fears or incomplete information.
What’s your situation? Are you considering “one more year,” or are you ready to take the retirement plunge?
You’ll save more.
One clear way that working more changes a person’s plan is by giving them an extra year to save money. Typically, individuals are at their peak earnings, and thus savings, years at the end of their careers. Furthermore, their expenses usually have dipped, as kids are generally out of the house and off (or mostly off) the payroll.
Combining these factors means that each additional year of working affords you the ability to really squirrel away some substantial funds, which of course has a large impact on your net figures.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more – straight to your e-mail.
Profit and prosper with the best of expert advice – straight to your e-mail.
Now, every time I show this to someone and their jaw drops, I have to start describing the why behind what they are seeing, as the numbers seem faulty. I figured, why keep it a secret? So I’m sharing with you today all the things that go into the mass impact of working one more year.
Work One More Year Before Retiring? Why This Decision is HUGE!
FAQ
Should I retire or work one more year?
While it may make financial sense to wait another year before retiring, it’s not the only consideration. If you’re not in the best of health, for example, you may want to start enjoying your golden years now rather than keep working — especially if work is a huge source of stress that exacerbates your health issues.
What is the $1000 a month rule for retirement?
The “$1,000 a month rule for retirement” is a simple guideline to help you estimate the savings needed to generate consistent monthly income in retirement, typically requiring $240,000 in savings for every $1,000 of desired monthly income. This rule, based on a 5% annual withdrawal and 5% annual return, suggests that withdrawing $1,000 a month from a $240,000 portfolio would provide that amount of income without depleting your savings.
Is it healthier to keep working or retire?
Working Longer May Have Health Benefits One study concluded that early retirement may be associated with increased cognitive decline as a result of less social interaction and connection.
What is the one more year retirement syndrome?
You may have “just one more year” syndrome if you feel like you have to keep working even after you’ve reached your financial goals, maybe in a job you no longer enjoy. There’s no rule that says you have to stop working at a certain age.
Does a year of work affect your retirement savings?
While you may have saved and invested for 40 or more years in preparation for retirement, that one additional year of work is likely to have a greater impact on your retirement savings than you imagine. Here’s a look at some of the effects that extra year may have, including some secrets you should know.
Should you work one more year to boost your savings?
Yes — it could be the biggest retirement decision you make. Here’s why You’ve reached full retirement age and you have a decent nest egg to fund your golden years. But you’re also wondering whether you should work just one more year to boost your savings even further.
Should you wait another year to retire?
If, however, you’ve already reached your retirement goals, then it may not make sense to wait another year. If you retired at age 67, you would get $2,800 a month from Social Security and $6,572 a month from your savings. That’s a total of $9,372 a month (before taxes).
What happens if you work more than a year?
If you work one extra year, you’ll be able to put more money into savings. Say, for example, you max out your 401 (k) at work; if your employer matches your contributions, you can further boost those savings. You also have one more year to grow your investment portfolio before drawing it down in retirement.
Can you retire early if you have a ‘one more year’ syndrome?
The “one more year” syndrome is a common obstacle that prevents people from retiring early. However, by developing a plan, talking to other retirees, visualizing your retirement, and not being afraid to take risks, you can overcome this syndrome and enjoy the many benefits of retiring early.
Should you work a 401(k) every year?
The most obvious financial benefit of working one additional year is that you will earn more money. If you regularly max out your 401 (k) plan contributions, for example, this means that you’ll be able to sock away another $22,500 in 2023 — or a whopping $30,000 if you are age 50 or older.