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Working One More Year is Costing You More Than You Realize · Retirement Answers

• 0:00
  Jacob: Working one more year is probably one of the most common ways that people try to make retirement safer. And it feels like it makes perfect sense, right? You get another year of income, another year of saving, another year of your investments growing, and one less year that your portfolio has to support you. But here's the hard part. There's another side of the equation that a lot of people don't know about or don't talk about enough.
• 0:20
  Working one more year, it's not free. There is a cost to it. And depending on where you're at financially and where you're at in your life, that costs might be a whole lot bigger than you really understand. Now, here's the reality. I acknowledge that sometimes working another year is absolutely the right decision for some people.
• 0:36
  And so this is not an argument that everyone should retire tomorrow, but instead, want you to consider this. What are you actually getting or what are you buying with that extra year of work and what are you giving up to get it? So today we're gonna talk through these five different things that I think you should be thinking about if you're telling yourself, I'll just work one more year and then I'll see about retirement next year. But first, you're if new here, welcome. This is the Retirement Answers Podcast.
• 1:01
  My name is Jacob Duke and I am your host as always. I'm also a certified financial planner and the owner of River Tree Wealth, a retirement planning firm that helps people just like you plan smarter and retire better. So let's go ahead and jump into this because a lot of people are really kind of on the edge right now. I'm talking to a lot of people and they're saying, hey, I could retire, I think Jacob, but I'm not uncertain about a lot of things. So I think I might just work another year, and that'll probably make things better for me, right?
• 1:26
  It would probably make my plan better, I'd have more money, I'd have less amount of time I need to actually rely on my portfolio, but there are a few key things that we need to talk about and think about that we're trading off here in order to work that extra year. So the first thing that I want you to consider is that you could be trading some of your healthiest retirement years for another working year, right? How many times have you or someone else you know, known someone that you know, hey, I worked and I finally got to that point of retirement at 62 or 65 or 70, and then shortly thereafter, they were diagnosed with some sort of illness that is obviously detrimental to their health, or heaven forbid, they passed away earlier than expected, right? They worked their entire life to get to this moment, to go finally do the thing, or take the trip, or be at home, or, you know, reconnect with a friend or family member or whatever it might be. And they didn't get the opportunity to in the way that they wanted to or at all, simply because they didn't use their healthiest years in the way that they should have because they kept pushing back their retirement date altogether.
• 2:28
  Because here's the problem, we think of retirement as this one big block of time, call it thirty years, if you retire at 60 and you pass away at 90, let's say. The problem is, is not all of those years in that thirty year period, they're not all created the same and they're not all equal. There's a big difference between retiring and what you can do at 60 to 65 or 60 to 70 versus what you can do from 70 and beyond. Most of the time that's from a health perspective, right? There's a big difference in what you can or cannot do during those different phases.
• 2:56
  So you have to understand whenever you work another year, what phase of retirement are you giving up more time in? It's not the latter, it's not the end of life, it's not in your eighties or nineties that you're giving up, you're likely giving up your prime and most healthy years right now because you're deciding to work another year. Now here's the reality, right? I don't want you to just stop working because you're listening to me today, because you might enjoy work. A lot of people do, they enjoy the passion behind it, the fulfillment from it, the people they work with, and the sense of importance, right?
• 3:26
  Like there's something to it, contributing to a cause, making progress, doing something good for others around you and or the company you serve. That is a lot of people. A lot of people love to work and that's totally fine. But does that mean that you should continue working the same amount of hours, fifty, sixty hour weeks, really high stress jobs? What if you could find a way to do something in a lower stress environment or in a less amount of time?
• 3:49
  Maybe find a way to work part time twenty hours a week instead of sixty, right? Maybe you can still do the fulfilling thing, but just in a lower capacity so that you can start to wean yourself off of it just a little bit. And that way you can start to enjoy life a little bit more as well. Because here's the reality, you're not gonna be able to buy back or go back to that point in time at 60 or 62, whenever you were healthier than you were at 65 or 68 when you finally retire. So that's the first thing I want you to understand whenever you're evaluating this question of should I just work another year, because it's likely a good thing for my financial plan.
• 4:19
  The question is, what are you giving up to work that extra year? What if there's a whole year of vacations or fun or whatever you want to fill in the blank with there? What if there's a whole another year that you're giving up and that might be one of your only opportunities to go do those things? The second thing you have to think about here is whenever you're telling yourself, well, if I just work another year, I'll be able to save another 20 or $30,000 to my portfolio, right? And normally that's a good thing, absolutely.
• 4:43
  Obviously, saving more money helps you in the future. But the problem is this, an extra year of savings, it really doesn't matter quite as much as you think, especially as you're in that fifties and sixties age range. Right? Because if you've got a million, 2,000,000, $3,000,000, saving 20 or 30 or $40,000 is not a big deal compared to what your portfolio will also create or produce over time, whether it be in that year or subsequent years. So you think about it this way, your portfolio is doing the heavy lifting compared to how much money you're saving.
• 5:16
  Right? Because once you have that sizable portfolio, the investment returns, they're gonna end up dwarfing all of your annual contributions because for example here, you know, let's say you got a $2,000,000 portfolio, right? If that grows at 5%, you know, just over the course of that next twelve months, that's a $100,000 without another dollar being added to it. So you think about it, hey, I can add 20,000 or 30,000 to my $40.01 k. Great.
• 5:37
  That's fine. And please do that if you continue working, but I don't want you to continue working only because you think, oh, if I have another year of savings, I'm gonna get to retirement sooner or I'm gonna make a lot more progress because of this extra twelve months. The problem is if you have a sizable portfolio already, that's likely gonna outpace or outgrow any dollars that you can save or contribute to your portfolio. So don't tell yourself, hey, I've got to save more money to get ready for retirement. Your portfolio, if you've done it right, is already doing most of the work.
• 6:05
  So another year of savings is not going to make a big difference. Now, third point here is one that catches a lot of people off guard, because this is one that I paid a lot of attention to as a retirement planner and how we serve our clients and what we're looking at and kind of evaluating how can we make the most of what you've accumulated. And it has to do with the fact that working another year can actually make things harder from a tax perspective. Now, hear me out on this. Let's say that you're working and you're making a pretty high income, 100,000, 200,000 or more.
• 6:32
  What what you do by working another year, yes, you can save some money. Yes, you can have another year of, you know, that you don't need to pull money out of your portfolio for your expenses. But if you have that $23.04, $5,000,000 tax deferred IRA or four zero one ks that you've got this big looming tax bill down the road, when you think about your required minimum distributions, and especially for those of you who are married and you've got that 4 or $5,000,000 in those tax deferred accounts, the widow's tax trap is a big and major problem you have to consider, right? So another year of work during these high income years of the tail end of your career. The problem is this, you're using up a whole another tax year or whole another year of being able to do a Roth conversion strategy, right?
• 7:14
  Or be able to take more money out of your IRA at a preferred tax rate. So by trying to improve your retirement plan by working another year, if that's your intention behind working another year, you're actually harming yourself just a little bit because you're not going to be able to use that whole extra year of lower tax rates. Think the 10% bracket, the 12%, the 22, and depending on what your income has been throughout your career, perhaps even the 24% tax bracket, those could be used in a major way for either conversions or strategic withdrawals out of your accounts and pay those lower tax rates. So that's a whole nother year wasted if you continue working. And now here's the reality.
• 7:49
  These two things go hand in hand. I could argue that if you have a big enough tax problem, right? That means you don't need to make another year's worth of income because you already have enough money to support your lifestyle into the future, right? So here's the thing, work together. If you end up working another year at a really high income, you're only shooting yourself in the foot even more, because now you're kicking that Roth conversion plan or that strategic withdrawal plan and your tax plan entirely down the road a whole another twelve months.
• 8:17
  So working longer actually puts you in a worse spot because even beyond what you can't do in that one year, you have to think about how your tax deferred accounts by not doing that conversion or not doing the withdrawal. That's just compounding again, you've got more money growing and growing and growing. So your RMDs end up being major down the road. And whenever you think about that problem, now you have more of your social security become taxable, you've got IRMA surcharge issues once you do get to RMD age and beyond. So I think about it this way, sometimes retiring earlier, it's going to create a valuable period of time in retirement.
• 8:51
  This low income tax window or you might call it the tax valley, right? It's that time from when you retire before you take social security or before RMDs kick in, those are going be your lowest income years, most likely from the last fifteen to twenty years and then also into the future once your RMDs would kick in. So you have to take advantage of those and the longer you wait to retire, that's one less year and then one less year and then one less year that falls into that low income tax window that you could be using for your overall lifetime tax savings. So that's number three, working longer can actually make your tax plan even worse. Number four is an interesting one because here's the reality, it's a human nature problem, not a you specific problem.
• 9:32
  And it has to do with moving the goalpost on yourself, right? Soon as you get to a million dollars or 2,000,000 or whatever the number is you thought you had to get to to retire successfully. Soon as you get there, let's say you're, you know, 58. It's like, well, if I could just, you know, get from 1,000,000 to 1,300,000 by '60, then then I'll be good. Or and then you get to 60 and you're like, well, what's 1.5?
• 9:53
  Like I can just work another year and see if we can get some growth here and get to 1.5. And so the problem is, is you get to your number and you kick the can further down the road. You move the goalpost on yourself. You say, well, that's that was good enough, but this is now the new number. This is what I gotta have now.
• 10:07
  Right? And so you're delaying retirement for this new thing, this new idea that you have to have more. Or maybe you're actually trying to seek out another additional level of certainty, right? So it's like, man, I I know I can retire on 1,000,000, but if I had one and a half, I for sure can retire and be a 100% confident in that. And the problem here is this, you're never going to be confident enough.
• 10:30
  You're never gonna be a 100% certain. Okay? Here's the reality. I work with people of all demographics across all wealth levels, million dollars, $5,000,000, $10,000,000. Guess what?
• 10:41
  All of them have different concerns. Sometimes it's I'm running out of money. Sometimes it's I don't know how to, you know, save on taxes. Sometimes I don't know how to make sure I don't waste this stuff. Either way, you're gonna have a question in your mind.
• 10:54
  Sometimes the questions are different, absolutely, but here's the reality, you're never gonna have it all figured out. And something I've seen that's quite telling actually, is there's people that have more money that are more worried about their money than those who don't have as much money. For example, some with $4,000,000 typically, and and what I've seen anyway, they actually have more concerns about running out of money than the person that has a 1.5 or $1,200,000 does. I don't know why that is, but it's just the reality of what I've seen. So the more money you have, that does not equate or work linearly with your certainty or confidence level.
• 11:29
  In fact, I've seen it actually work the opposite way, because whenever you have more money, it often leads you to think you got more to protect and more to take care of, which leads you to more fear, anxiety. So here's the takeaway on this one. Stop moving the goalpost on yourself. The real question you have to be asking is, does what I have and does the plan I've built, does it have enough margin in it to adjust whenever things go south because they inevitably will, whenever I get that twenty, thirty, 40% drop in the market, do I have what I need in place from a amount of money, but also plan for that money? Do I have that in place when that time comes?
• 12:02
  Because it will come. But then also, what could I do differently with 1,500,000 versus 1,000,000 or 2,500,000 versus 2,000,000? And if we really drill down into that question, I think it's a lot less of a lifestyle than you might realize. Because even if you had 2,500,000, you're still gonna have the same worries, anxieties, fears. So that might lead you to spend the same amount of money anyway.
• 12:25
  Right? Even if you had permission and enough margin to do so, you still have to go over that that mental hurdle to actually go spend it and enjoy it. So that's number four, stop moving the goalpost on yourself. And the fifth thing I had here on my list was, you know, what the biggest cost that you are gonna pay by working that extra year is really what you're saying no to. Right?
• 12:45
  By saying yes to another year of work, you're saying no to something else. It's just the way that that trade off works. And so what you're saying no to oftentimes can be a number of things, but I'll just list a few. It could be grandkids and spending time with them, or it could be actually moving closer to family, right, if your kids are spread out across the country, or it could be, traveling with your husband or your wife while you're still both healthy. And you know that, hey, our genetics don't lend a long lifespan most of the time.
• 13:11
  So might as well take advantage while we can. Traveling with your spouse, doing the bucket list trip that you've always wanted to go on, or instead of, you know, taking, you know, a week of PTO, go take a month long trip, going to travel Europe or whatever, you know, what you want to do. You know, don't rush out the door on a Tuesday morning to get to the office, right? Just enjoy a cup of coffee on the front porch. The opportunity cost of working another year is not merely financial.
• 13:40
  It has to do with the life that you hopefully wanna live and you've gotten your mind in this vision for, that's what you're saying no to by working another year. It's the life that you could have enjoyed had you said, I've got enough, we've got this thing planned out, we're good to go, I can stop now. If you can find a way to tell yourself that and build the plan for it, those are the things that I'm explaining here. Those are the things that you don't have to say no to anymore. Maybe it's golf with your retired friend on a Wednesday.
• 14:10
  It's like, sorry, man, I've got work. He's over there enjoying golf, he's playing by himself. You can go play with him, right? Or lunch with your girlfriends, whatever it is, that type of stuff, you can't get back. And so the cost I think is way more personal than it is, you know, do I have enough money or not?
• 14:30
  Or does this yield a better retirement plan or not from a financial perspective? Because at the end of the day, all of this money, the whole point of doing this, the money part right, is so that you can enjoy life. It's so that you can enjoy the vision you have. It's so you can leave a legacy that's not even financial for your kids and grandkids. It's all of the things that are outside of the money, right?
• 14:50
  The money is just the means, it's just the tool. So if you're working another year only to have more money or have a better financial plan on paper, really check yourself, really look at this and evaluate say, hey, are these five things that you know, I'm discussing here in this episode, are these five things part of what's holding me back? Are these five things something that I should be thinking about? Because I can't tell you the number of times that we've had clients come to us, say, yep, I want to get started, I want build this plan, I want to get confidence around all these things. This and you know, hey, I've got a plan, I'm probably gonna retire like five years when I turn 60.
• 15:21
  You know, we get into that, we build a plan out and inevitably, you know, twelve or twenty four months later, the question comes along, it's like, hey, so are you telling me that I could retire if I really wanted to? I know I said I wanted to be done at 60, but what does 57 or 58 look like? Is that possible? And if the answer is yes, you know, obviously we tell them yes. But the reality is that they would have not at all known that was possible, had they not built a plan.
• 15:48
  Right? Had they not gone through the hard work and the steps of really digging in and saying, hey, what could be possible and when is that possible? So don't just push yourself into the future and say I'm gonna work another year because you're afraid of doing the work and actually digging in and saying, hey, is this actually possible? Could this happen? So evaluate your situation, don't do it just for the money.
• 16:10
  If you wanna continue working, by all means, keep working, especially if it's something that's fulfilling and fun and gives you meaning and purpose. If you're lacking on some of those things that I just described those three to four different, you know, tenants. If you're lacking on some of those things, and you're starting to say, why am I doing this still? Look at this list that I've gone through here today and say, where am I missing it? What's the problem?
• 16:32
  And could retirement be a reality even sooner? So I wanted to just share that with you today, just things I'm having conversations with prospects with things that are people reaching out with, hey, I think I want to retire, but I'm just not sure. Maybe I'll just work another year to be safe. These are the types of things that many people just like you were talking about and thinking through, so I wanted to share some ideas with you on it. But if you enjoyed this episode, again, please share it with a friend, that way they can benefit from it as well.
• 16:55
  Also too, if you've been listening for a while and this has been a helpful resource for you, I'd love to see a rating and review there on Apple Podcasts and Spotify. It helps other people just like you find the show and benefit from the same conversations that we're having. But also too, you know, if you're looking for help with your plan, you can always reach out. We're happy to have a conversation to see if we're a good fit. There There should be a link down in the description below for you to apply to work with us here at River Tree, if you think that's something that you're looking for.
• 17:17
  So anyways, thanks for tuning in. We'll see you next time. Hey, it's Jacob again, and I wanted to remind you that nothing discussed in today's episode is meant to be financial, legal, or tax advice. Retirement Answers is for educational purposes only. Thanks for tuning in to this week's episode.
• 17:34
  I look forward to talking with you again next week.