10 Reasons Why You Should Delay Taking a Pension

During their careers, people anticipate the day when they will be able to retire. When the time comes, it is essential to be financially secure to avoid any financial stresses associated with daily living. If you decide to stop working as a teacher or a state employee, you should have a retirement plan in place to cover your post-retirement needs and assist you in leading a stress-free life. 

Your pension is one important part of your retirement planning. It is defined as periodic or lump sum income received as a retirement benefit that offers the advantage of suitability to guard against and lessen the effects of extreme poverty. However, many Americans still have doubts regarding their capacity to retire whenever they like. 

The 2020 Employee Financial Wellness Survey by PWC found that 51% of respondents anticipated continuing to work after retirement age. Additionally, according to the Consumer News and Business Channel, 25% of Americans are delaying retirement due to inflation.

Many reasons exist why someone would choose to delay taking a pension, some personal and some related to current events. However, delaying your pension can also provide you with several advantages. This article will provide you with ten reasons why you should delay taking a pension.

1. Increased Retirement Income

Making retirement assets survive long enough to support you during your retirement is a key difficulty that many people encounter. According to the National Bureau of Economic Research, working an additional three to six months per year can raise your retirement income by as much as 1% of 30 years of employment. The advantages of classic retirement strategies, like increasing your savings rate or switching to a low-cost portfolio, start to wane as you approach retirement. 

As a result, your retirement lifestyle could be significantly improved by working longer and delaying the moment you begin to draw from your retirement savings. Additionally, the more money you can continue to save the better because the government permits you to make catch-up payments to your 401(k). This will give you more time to save and earn a return on your investments.

2. Your Pension Has More Time To Increase

Preserving your pension investment for as long as you can has a significant long-term advantage, regardless of whether you choose to continue working and contributing to your pension or simply leave your assets undisturbed for a few years once you’ve retired. When the time comes for you to collect your pension, you will be able to get greater payouts because it won’t need to last as long.

One excellent strategy to protect your retirement is through investments. Given the global inflation and current events, choosing to keep your pension invested can be especially helpful if you plan to retire during a recession and have experienced a decline in your pension balance. Depending on your situation, you can continue investing your funds until the markets stabilize and your balance increases. We’ve collected some investment tips for teachers beyond pension to help you get started.

3. Increasing Social Security Benefits

When you retire, you can begin receiving Social Security benefits as early as age 62. However, the earlier you begin receiving, the lesser your benefits are. Delaying your pension and your Social Security payments until a date after your full retirement age (FRA) is advantageous since you can accrue credits that increase your benefits. 

Up to age 69, you receive an additional 8% for every year you wait to file your claim after your FRA. But keep in mind that these credits expire when you turn 70, so waiting for much longer won’t result in bigger benefits and could result in missed payments. That’s why it is important to have a benefits expert to work with for you to have the proper access and understanding of how to maximize your retirement.

4. Maximize Your Investing Potential

Maximizing your investment potential first is one of the most important reasons why you could delay taking your pension. As you draw closer to retirement, some pension plans automatically put your savings and investment at risk by adjusting the assets you invest in. For example, commodities and shares have a strong relationship with market performance, and while they can be excellent investments early in your career, they might become riskier as you approach retirement. Similar to the current events, because of the Covid pandemic and conflicts around the globe, your pension balance could be impacted if the market suddenly takes a downward turn, and you might not have enough time to wait for it to recover before you retire.

Therefore, if you intend to delay taking your pension and retire later, you may be able to maximize your investments for a few more years. Before taking your pension, you should get in touch with your pension provider in advance to see if they can change your investments since the transition to cash or fixed interest investments often occurs five to ten years before retirement. 

5. Your Company Will Continue To Increase Your Pension

As a teacher, your employer will be compelled by law to continue increasing your pension if you put off retirement and keep teaching. The government will continue to top off your pension while you work if you are a state employee. According to the Pensions Act of 2008 (PA 2008), all companies are required to evaluate their workers and, if they meet specified requirements, enroll them automatically into a pension plan with minimum contributions. Since February 1, 2018, all businesses are required to participate in auto-enrolment, which began in October 2012. 

If you choose to delay your pension and work for a few years, it will have a huge impact on the pension you’ll receive by the time you decide to finally retire.

6. Hold Off on Some Needed Minimum Distributions

Working longer and delaying your pension will enable you to delay taking an annual required minimum distribution (RMD) from your employer’s 401(k) or 403(b). However, there is one exception: if you own 5% or more of the corporation that sponsors the plan, you must start taking RMDs by the age of 72.

RMD regulations underwent significant revisions as a result of the 2020 SECURE Act. To make sure you’re compliant, you should check in with a trusted and reliable financial advisor. It is important to have a knowledgeable guide in your retirement planning for you to achieve the retirement life you want.

7. Better Health Insurance and Benefits

Most Americans, regardless of age, have access to health insurance because of the Affordable Care Act. But until you turn 65 and become eligible for Medicare, working longer may give you the chance to obtain health insurance via your employer at a lower cost than individual coverage. 

Other insurance and benefits that improve general well-being and quality of life are also frequently provided by employers. As a result, it would be advantageous to delay your pension and keep working as long as you’re able to.

8. Maintain the Tax Delay

After age 70, standard 401(k) withdrawals are typically necessary. Nevertheless, you can continue to put off paying income tax on retirement funds held in a 401(k) provided you are still employed and don’t own 5% or more of the company sponsoring your retirement plan. 

Your taxes will also be impacted by your retirement fund. However, the amount of taxes you must pay and the timing of those payments vary since there are numerous retirement accounts in which you can invest. Each fund has its own set of guidelines for paying taxes. Both current and upcoming tax obligations fall under this. To further understand how a retirement fund may affect your tax returns, it is best to speak with a reputable financial advisor.

9. Enhance Your Wellbeing and Standard of Living

Choosing to continue to work could provide advantages beyond money, depending on your career, lifestyle, and retirement goals. After all, for many people, a job is about more than just making money. According to Harvard, there is mounting proof that working after the age of 65 may have benefits beyond financial gain. According to their research, working after retirement promotes longevity and improves health. 

Your social circle may be larger and you might experience a greater sense of purpose if you keep working. You’ll have an important reason to get up, maintain physical activity, and improve both your physical and emotional health.

10. You Won’t Have To Depend on Your Savings

Last but not least, you do not need to begin withdrawals from your investment account as soon as you delay retiring and claiming your pension. The longer you wait to start taking withdrawals, the less likely you are to run out of money later in life because your savings will have more time to support you.

There are many reasons to work a few more years and delay taking your pension. However, it is still best to have the guidance of a reputable financial advisor if you want to be well informed and knowledgeable about how to maximize your retirement. 

You can get in touch with us for a free review and consultation. You’ll get the chance to meet with a seasoned agent and financial advisor who is especially interested in helping teachers and state employees. They’ll go over your retirement and financial plan in detail so you can be sure you’re making the best decision for you and your family.

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If you are a K-12 educator or staff, collegiate educator or staff, municipal or state employee we can connect you with a licensed financial professional with the experience needed to help you understand your pension benefits and overall retirement plan.