Should You Retire Now or Work Five More Years?

A happy older couple drink wine outside their house and contemplate retirement.

(Image credit: Getty Images)

Want to retire now, but not sure you’re ready to call it quits? Before you leap, consider what working another five years would mean to your retirement.

When planning for retirement, the focus is often on savings: Do you have enough to fund a retirement that could last two to three decades?

While that's important, particularly when your retirement savings are in the dumps, it's only part of the equation. Your health and well-being matter, too.

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You can amass all the money in the world, but if you can't spend it or you have to sacrifice your happiness, is it worth it?

Deciding when to retire is personal, but before choosing to either call it quits or work another five years, it’s essential to weigh both financial stability and overall well-being.

“If the goal is to leave work and start living life in a way you couldn’t before, then by all means, do whatever brings you the most enjoyment,” says Jaime Ruff, CFP, Principal at Homrich Berg.

“But you have to be careful not to retire before you are sure you can," Ruff said. Should you have to or choose to return to work after retiring, "it's hard to establish income and hard to get a job back at the level you were.”

Why it makes sense to keep working

There are several financial benefits to working five more years, whether you're 62 or 67. Reasons include:

1. Your nest egg continues to grow. As you work and contribute to your retirement savings, your account balances grow. Savings remain invested, which amps up the growth even more. To see how much you could save in five years, check out our Saving Calculator. You can also check out our Retirement Calculator.

2. Avoid sequence of return risk: If you retire when the markets are down, you can experience sequence of return risk, which occurs when bad investment returns deplete retirement savings early on, putting you at risk of running out of money later. If you work five more years, the markets have time to recover and your portfolio has time to recoup the losses.

3. Higher Social Security benefits. The longer you delay claiming Social Security benefits, the bigger your monthly payment will be. Payments increase 8% each year you delay up to age 70.

4. Greater income potential. If you work longer, you might continue to get raises or promotions. More money means a larger nest egg.

5. Save on health care costs. Medicare, which covers about 80% of health care expenses, doesn’t kick in until age 65. Before that, you're on the hook for health care costs if you don’t have employer-provided insurance.

That could set you back around $1,500 per month, depending on your age, health and where you live, according to Value Penguin.

6. Better well-being. Unless you're stressed out, hate your job or it’s too physically demanding, working longer might be good for your health.

Studies have shown it can help keep your brain healthy, reducing the risk of dementia. Working tends to be social and gives people a sense of purpose. You give that up when you leave the workforce.

What could go wrong working five more years?

All that sounds great, but it’s only half of it. A lot can happen in five years that could cause you to regret not retiring sooner.

1. Your health suffers. Everyone thinks they'll live a long time, but sometimes your health can suffer, limiting your ability to travel, pursue hobbies or engage in leisure activities.

2. You might miss out. You might be able to work forever, but what if you miss out on time spent with families, opportunities to meet new people or to visit a new place?

3. Work stress can lead to burnout. If your job is high-stress or the workload gets taxing as you age, it can lead to stress and burnout.

4. Health issues: Working long hours or at a physically demanding job can lead to both physical and mental health issues.

5. Your loved ones need you: It may not be your health, but that of a loved one who is suffering, causing you to retire to take care of them or spend more time with them.

Define your retirement

Still on the fence about whether you should work five more years? Defining your retirement can help you decide when to leap.

Are you completely retiring, drawing down from savings, and collecting Social Security? Or do you plan to be a consultant or do something less time-consuming? If you plan to stop bringing in a paycheck and can afford it, retiring now may be a no-brainer, but if you'll struggle, five more years of work could be in your cards. If you are planning a phased retirement, you can stretch out the decision.

“All of that is part of the decision. It’s a much more modern perspective of what retirement means,” says Rob Williams, managing director of financial planning, retirement income and wealth management for the Schwab Center for Financial Research.

Can you retire now?

Once you figure out what your retirement will look like, assess if you can do it now or if working five additional years is more beneficial.

Harry Drozdowski, a family office strategist with Wells Fargo Wealth & Investment Management, likes to have his clients think of the decision as a traffic light.

Red zone. You don’t have enough money to do what you want. “If you're in that red zone, you'll have to make substantial changes to the quality of your life,” says Drozdowski.

Yellow zone. You can afford to retire tomorrow, but you’ll have to make little changes. This is where other factors, such as spending time with family or pursuing a hobby, weigh more heavily in the decision.

Green zone. You're good to go, with enough income to do it all. “I don’t think everyone hits the green zone,” says Drozdowski. “I like most people to aim for green or yellow.”

Don't forget the plan

Whether you should retire now or work five more years is a personal choice that goes beyond financial considerations.

While staying in the workforce longer can grow your savings, increase Social Security benefits and provide a sense of purpose, it also comes with potential downsides, such as health risks, missed opportunities and job-related stress.

Understanding where you stand financially and what you really want from retirement will help you make the right decision.

Donna Fuscaldo is the retirement writer at Kiplinger.com. A writer and editor focused on retirement savings, planning, travel and lifestyle, Donna brings over two decades of experience working with publications including AARP, The Wall Street Journal, Forbes, Investopedia and HerMoney.