Small steps can make a big difference in retirement planning.

Dee Lay and his wife (Fee Lay, of course!) arrive at age 66, trying to figure out if they can retire. Dee has about $500,000 in his 401(k) and they spend about $5,000 a month to live.

They go see their financial planner, Les Werking, to find out if they are ready to retire.

“Well that all depends on whether or not you plan to live past age 80,” Les tells them. “Cause that’s about how long your money will last.”

Dee and Fee swallow hard and ask Les “Would working four more years make any real difference?”

“Well quite a bit actually,” Les says as he perks up. “That’s four years that you’re not spending down your nest egg but you are adding to it. Four years for growth of the money that’s already there. And…four more years for your Social Security to grow.”

Huh. They hadn’t thought about that last part.

“What do you mean our Social Security will grow?”

“Ahh,” Les says smiling, “every year you delay taking benefits beyond your ‘normal retirement age,’ the benefit itself rises 8%...every year. That means if your benefit would have been $2,000 a month age at age 66, it will grow to over $2,700 a month by your age 70.”

Les pulls out a legal pad and his calculator… “So, if you are due a $2,000 a month benefit at age 66, that means your wife is due half of that (50%) or $1,000. Well by delaying your benefits until age 70, your benefit will go up to just over $2,700 a month. And your wife will still get $1,000 a month. Together, your benefits will grow from $3,000 a month to about $3,700 every month.”

And he continues, “Your 401(k) is about $500,000. Well, that’s good, but not quite good enough. If we let it grow four more years, assuming we get about a 5% growth rate (not guaranteed, but historically pretty conservative), then your $500,000 will grow to about $600,000. And if you continue to maximize your contributions as you have been doing, it’ll grow to over $700,000.”

Well he pauses and he looks at Dee and Fee in the eye, and he says, “Retiring today means that you try to make it with $3,000 a month of fixed income and $500,000 of assets to last you a lifetime. By my calculation, that dog won’t hunt.”

“But,” he smiles, “if you delay your retirement, working just four more years, you’ll have over $3,700 a month of fixed income and by my projections, you’ll have over $700,000 of assets in your retirement plan. Well now, that’s a plan that can work.”

Well, Dee and Fee experience remorse and relief at the same time. It would be nice to be able to retire now, but Les has confirmed their fears – they really don’t quite have enough.

But he also allayed their even bigger fear – that they never would. They find their remorse receding and their feelings of relief blossoming.

It’d be nice to be able to retire now. But if you’ve got to keep on working, it’s nice to know that those years will directly contribute to the financial freedom that you’ve always wanted.

Until you plan, you’ll never know what little things might make a big difference in your retirement timeframe.

Offering you Wisdom on Wealth, I’m Byron Moore.

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