The Fourth of July was this week and we hope you all had a great time with family and friends.  Nothing is more enjoyable than having your relatives over and hearing that one story you’ve heard 400 times for the 401 time.  My personal favorite is how someone had to walk up hill both ways, in either 3’ of snow or 110° weather. Unfortunately planning for retirement carries those same tales we’ve heard, again and again and at least one more time.  Now if you’ve been with us for a while there is no doubt you’ve heard us talk about “The Power of Investing Early!” or “The Power of Compounding!”. 

If you haven’t the premise is that Robert and Stephanie are both looking to save for retirement.  Stephanie contributes $100 a month for 10 years, while Robert waits 10 years and then contributes $100 a month for 25 years.  Despite contributing almost 3 times the amount Stephanie did Robert ends up with less money in the long run.  The idea is that investing early and letting your money compound is the basis of saving.  Obviously its not always that straight forward.  In this case Robert might not have been able to comfortably contribute when he was younger thus leaving him behind the eight ball and potentially not prepared for retirement.  

A common misconception is that the only way Robert can catch up is to be more aggressive and take risks he might not be comfortable with to get greater returns.   That isn’t the case though; there is a super simple and incredibly effective technique to close the gap in just a few short months.  You’re probably thinking “Aaron... what is this mythical strategy?” or you’re probably thinking “what is he trying to sell me now?”.  Honestly all it takes is… ready for it?  Just postpone retirement a little bit… that’s it.  No special product, no miracle cure, just delay your retirement.

A recent study by Gila Brohnstein of Cornerstone Research, Jason Scott of Financial Engines, John Shoven, an economics professor at Stanford University, and Sita Slavov of George Mason University find that postponing retirement can have a dramatic impact on your actual retirement.  They surmise that by prolonging retirement for just 6 months has the same impact as saving an additional 1% for 30 years at an annualized 8% return!

 I am sure you’re wondering how that is even possible, the answer is quite simple.  By postponing retirement, you can get higher Social Security benefits, contribute more to your retirement plan, allow your retirement plan to grow and potentially avoid paying for health insurance before Medicare. This reflects what we’ve been seeing in our own research.  Delaying retirement can be one of if not the most impactful thing you can do to increase your chances of making it through retirement with money left over.

Obviously, no one wants to work longer, but by punching the clock for just a little while longer you can potentially cover up some gaps from yesteryear.  Not everyone will have to postpone, but if you are interested to see the impact this might have on your specific retirement plan please let us know.   We have software that allows us to change various aspects of your retirement to find out what might work best for you.