Should You Work One More Year or Retire Now?

The Big Question: One More Year or Retirement?

When nearing retirement, a common dilemma arises: Should you work one more year or retire now? This question surfaces in nearly every financial consultation because many people know they can retire, yet they believe working one more year might enhance their retirement security. But is that extra year truly worth it?

In this article, we’ll break down the real impact of working one additional year, looking at your pension, Social Security, investment growth, and overall retirement readiness. We’ll also help you decide if delaying retirement is worth it or if it’s time to enjoy the next chapter of your life.

What Happens If You Work One More Year?

1. You Earn Another Year of Salary

One of the most obvious benefits of working an extra year is receiving another full year of income. This means you have more money coming in to cover your expenses, save, and contribute to your retirement accounts.

2. Your Pension Will Increase Slightly

For Washington State employees, your pension is based on your years of service and your highest-earning years. If your average final compensation (AFC) is $100,000, and you have 30 years of service, your pension might be 30% of that ($30,000 per year).

By working one more year, you add another year of service, raising your pension to 31% of your AFC, or $31,000 per year. That’s an extra $1,000 per year for life—an increase, but not a game-changer.

3. You Contribute More to Social Security

Each additional year of work can increase your Social Security benefit, but only slightly. Social Security calculates benefits based on your highest 35 years of earnings. If you're already past 35 years, working another year only replaces one of your lower-earning years, typically resulting in a small benefit increase.

For example, if your Social Security benefit at 62 is $2,000 per month, working one more year might raise it to $2,100 per month. While helpful, this alone may not justify delaying retirement.

4. Your Retirement Savings Grow

Another year of work means another year of contributions to your retirement plans, like TRS Plan 3 or your Deferred Compensation Program (DCP).

For instance, if you contribute 10% of a $100,000 salary, that’s $10,000 more in retirement savings. However, even if you stop contributing, your savings continue to grow due to investment returns. If you have $1,000,000 in retirement savings, a 5% return alone adds $50,000 to your portfolio, whether you're working or not.

5. You Postpone Withdrawing Retirement Funds

If you retire, you’ll start drawing from your pension and possibly other retirement savings. By working one more year, you delay those withdrawals, letting your investments grow further.

However, keep in mind that delaying retirement also means giving up a full year of pension income. If your pension at 62 is $30,000 per year, delaying retirement means missing out on that amount in exchange for a slightly higher pension later.

Is Working One More Year Worth It? Let’s Compare the Options

Let’s compare a 62-year-old teacher considering retirement vs. working another year. Assume:

• Salary: $100,000
• Current Pension: $30,000 per year at 62
• New Pension: $31,000 per year at 63
• Social Security at 62: $2,000 per month ($24,000 per year)
• Social Security at 63: $2,100 per month ($25,200 per year)
• Retirement savings: $1,000,000 with a 5% growth rate

Option 1: Retire at 62

• Total Annual Income: Pension ($30,000) + Social Security ($24,000) = $54,000 per year
• Investment Growth: $1,000,000 at 5% adds $50,000 per year
• Net Income (After Standard Deduction, FICA, Medicare): Estimated $48,000
• Retirement Lifestyle Begins Now

Option 2: Work One More Year

• Salary Earned: $100,000
• New Pension: $31,000 per year (+$1,000 per year for life)
• Social Security Increase: +$1,200 per year
• Additional Retirement Savings Contributions: $10,000
• Investment Growth Continues
• Net Income (After Standard Deduction, FICA, Medicare): Estimated $72,000
• One More Year of Work and Delayed Retirement Enjoyment

Key Takeaways from the Comparison

• Net Income Gain for the Year: $72,000 (working) - $48,000 (retired) = $24,000 more in take-home pay.
• Guaranteed Income at 63: Pension ($31,000) + Social Security ($25,200) = $56,200 per year (only $2,200 more than retiring at 62).
• Additional Salary for One More Year: $100,000, but at the cost of delaying retirement.
• You give up a full year of retirement and the freedom that comes with it.

Ultimately, while working longer provides some financial benefits, the biggest trade-off is your time and freedom. If your retirement income already covers your needs, that extra year of work may not be worth it.

When Is It Time to Retire?

1. Your Expenses Are Covered

If your pension and Social Security cover your essential expenses, you may not need another year of work. If you own your home and only need $3,000 - $4,000 per month, your retirement income may already be enough.

2. You’re Ready for the Lifestyle Change

Many retirees say their biggest regret is not retiring sooner. Once they experience freedom from early alarms, long commutes, and work stress, they realize they could have left earlier.

3. Your Health and Happiness Matter

Retirement isn't just about money—it's about enjoying your time, health, and relationships. If you’re financially secure, but delaying retirement out of fear, it may be time to take the leap.

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