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Retiring early has become more popular over the years as individuals save and invest their way to a coveted reality: enough financial freedom to have a comfortable life and not work again.
Entering retirement isn't always as easy as we think it'll be. We often don't think about how emotional the transition can be; after decades of having a saving mentality, you now have to start spending the money you accumulated, and that can be a source of anxiety for many soon-to-be retirees. But on top of this conundrum, those who are on the cusp of retirement — close enough but could still work a few extra years — sometimes face another quandary: Do I keep working since I love my job or should I call it quits and begin my retirement?
Select asked Joe Duran, Head of Goldman Sachs Personal Financial Management, to weigh in with his thoughts and according to him, the answer to your predicament could lie in aiming to strike a balance between the two.
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"Retirement and our perceptions of it have really changed in the past few generations and now it might include part-time work or even going back to school," says Duran. "People are reimagining retirement every day and having a good financial plan can give you a lot more confidence and reduce the anxiety often associated with retirement."
There are, of course, some advantages to remaining in the workforce for as long as possible. For one, the longer you delay distribution of your Social Security benefits, the more you'll receive each month when you do decide to claim your benefits. If you have limited sources of retirement income, this may encourage you to keep working until you hit age 67, the age where you can receive 100% of your monthly benefit. Plus you can get a bump of 8% in your benefit for every year you delay receiving Social Security, until age 70.
And, of course, the longer you work the more money you'll be able to stash away to use in retirement, especially if you hadn't already been saving for retirement in your 20's or 30's. Retirement accounts typically have yearly contribution limits — for a Roth IRA, for example, you can only contribute $6,000 a year ($7,000 if you are over the age of 50). These contribution limits are use it or lose, which means that if you only contribute $5,000 this year you cannot contribute an extra $1,000 next year.
Over time, the lost opportunity to max out your contributions can add up and, depending on when you started saving for retirement, it could even play a big role in the lifestyle you're able to afford.
So if you haven't already been contributing to a Roth IRA, it might be time to open up an account and start stashing your money in one. Wealthfront and Betterment make the process as simple as possible since they are robo-advisors that can actually make investment suggestions based on factors like your risk tolerance, goals and time horizon for retirement. Because of this, they also take a lot of the stress out of money management, which can be a plus for many people since there's already so much to do in everyday life. Or, if you want to go the more traditional route, you can open a Roth IRA through a brokerage like Fidelity or Schwab.
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Even if you already have a workplace 401(k) account, it's still a good idea to contribute to a retirement account that isn't attached to your employer and that allows you to contribute after-tax income upfront for tax-free withdrawals in the future. This is yet another factor that can play a role in the amount of financial flexibility you have in retirement, and it can be as important as how long you remain in the workforce.
"Continuing to work for as long as possible will absolutely give you more choices and financial freedom in retirement," Duran explains. "Working for a longer period of time not only gives you more savings and builds your safety net, but it also provides health benefits which you don't have to pay for personally."
However, Duran also suggests that you should keep balance in mind in other areas of your life when considering whether or not you should remain in the workforce. According to him, even if you love to work you can never regain any time that you've lost. It's important to figure out what actions would give you the right balance between financial flexibility and how you would like to spend your time for the rest of your life.
"It's also important to remember that the people in your personal life need to be included in how you prepare for and think about what retirement might look like," Duran says.
Many people choose to use their retirement to spend more time with their adult children and grandchildren. They may find that being able to pick up their grandchildren from school, join their families on spring break or summer vacations and volunteering for their grandchildrens' school events are meaningful ways to spend their retirement — especially if they wouldn't have been able to participate in these activities during a normal workday.
But those who don't feel totally ready to say goodbye to the workplace just yet can think up ways to make adjustments that will still allow them to work and accommodate non-work activities that bring them joy.
"Many people today think about adjusting their work lives by reducing how many days they might work or taking on consulting work as an alternative so they can continue to enjoy work but also increase the amount of personal freedom that they have earned," Duran suggests. "This is not just a financial decision, it is also a psychological one and the loss of your working identity can be quite difficult to adjust to, which is especially true if you have anxiety about your financial situation."
Ultimately, your decisions will come down to your own unique circumstances and personal goals. There are many ways you might make adjustments in your life while still keeping your financial flexibility in mind. If you're having trouble finding opportunities for more financial and personal flexibility, you might consider connecting with a financial professional who can take a look at your circumstances (and your finances, of course) and help you create a path you would feel comfortable navigating.
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