When is it profitable to stop working?
Even though the last few years of work before retirement seem to stretch out for some, others take them in stride. Often, they hope that delaying their retirement will allow them to have a higher income later. But, this is not always the case. Is your retirement just around the corner? Are you counting down the days every time you set out for the office? Then the time is probably right to take a closer look.
Charles de Kovachich: Portfolio Manager
While it's true that working longer may indeed help you save more for retirement, don't forget that the financial benefits that come with working longer are not always as important as imagined.
For example, a higher salary could reduce the amount received in government benefits. As a result, some people may find themselves penalized. This is the case with the Old Age Security (OAS) pension, which is paid out by the federal government to Canadians aged 65 or older and which may be decreased if their salary exceeds $67,668 in 2011.
Moreover, some people contribute to a "percentage of salary" retirement plan. The future pension from such plans is based either on an average of their highest annual salaries or on a specific percentage. Sometimes, it makes sense for these workers to extend their careers and keep working.
Multiple other factors must also be taken into account if you're thinking about working longer, such as the cost of living, the state of your health and the amount of money you've been able to set aside outside of retirement plans. Indeed, it should be to your advantage to stay in the labour market, but up to what point? Financially speaking, it may not be as advantageous as you think. Thus you might be able to enjoy an extra year of retirement without it hurting your standard of living.
In light of all this, you may conclude that working longer will not benefit your retirement. But before giving up on the idea, it's important to be sure. Instead of losing patience making up calculations and weighing the pros and the cons yourself, why not consult with an advisor?
Charles de Kovachich
National Bank Financial