In today’s low interest rate environment, a common question is how can I increase my portfolio returns? If you’re close to retiring, one strategy that can have a significant impact is to actually delay retiring at least one more year.
According to an article in the Journal of Financial Planning by David Blanchett titled “The ABCDs of Retirement Success,” the impact of waiting can be the equivalent of adding one percent per year of additional returns during retirement. During a time when five percent is a reasonable rate of return for retirees, this strategy represents a 20 percent increase!
The specific items addressed in Blanchett’s article in regards to delaying retirement include the benefit of delayed withdrawals from your investment portfolio and higher Social Security benefits. Not only does waiting one year prevent you from drawing from your investments, it also allows more time to make additional contributions. Interestingly, Blanchett reports that generating above average returns, typically described as “alpha,” does not have nearly as great of impact on retirement success as the amount you withdraw each year from your portfolio or the total amount you have invested in stocks.
Waiting to retire can help transform a plan likely to fail to one that will most likely succeed. To learn more about how to make Social Security work for you, I highly recommend Jim Blankenship’s book “A Social Security Owner’s Manual.”