Deferred Retirement Benefits

Tax-deferred plans like 401(k)s can add to what you sock away.

Tax-deferred plans like 401(k)s can add to what you sock away.

While retirement might seem like it's a long way off, it's never too soon to start planning for it. Taking advantage of tax-deferred plans can give you more money to withdraw when you're ready to stop working. If you choose to defer taking retirement and tapping into your savings, you may be able to draw more money every year because it won't have to last as long.

Tax-Deferred Savings

Realizing tax-deferred savings can be done at work and at home. Workplace plans like 401(k)s allow you to have money taken out of your paycheck before taxes are withheld. Outside of work you can contribute to an individual retirement account (IRA) and deduct what you put in from your income tax. Both IRAs and workplace plans are subject to limitations and require you to pay taxes when you take out the money, but they are still ways to get all of your money working for you.

Deferred Compensation

If you're an executive or work in other highly compensated position your employer might offer you a deferred compensation plan. These let you put off getting a portion of your pay for a period of time, which puts off any tax liability. While your employer holds the money, it may invest it for you. Though deferred compensation plans can be complicated and carry some risks, they're also useful ways to save more money for your future.

Deferring Social Security

The full retirement age is 67 at the date of publication. However, you can start collecting benefits at age 62 or wait until you turn 70. If you retire early, your benefits get permanently reduced. Waiting three extra years could increase your payment by 24%, turning a $2,000 payment into $2,480.

Deferring Retirement

The longer you wait to retire, the more time that you have to save money for retirement. Also, retiring at 70 means that your savings have to last 10 fewer years than if you retired at 60. It also means that you get to hold on to your workplace insurance longer and avoid paying high premiums. Staying busier may even help you stay healthy longer and live longer so that you end up with a better retirement when you do stop working.

 

About the Author

Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.

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