Why it pays big to work part time before retiring

I just met with a client couple in their 60s who have "almost enough" money to retire. Try as I might when crunching the numbers, I just couldn't see a way for them to retire safely and completely today, at least not at their current lifestyle.

But not all is lost. They still have a great path to retirement that lets them take a bit more time off, do some trips, and enjoy life before getting old. By working part time, they free themselves up to take long weekends, enjoy weekday lunches with friends, and go golfing. All while continuing to grow their net worth and improve their financial picture.

Big picture, for each month they wait to retire, they are effectively increasing their net worth by approximately $9850, even though they are only earning $5800 per month combined. How do they do this?

Firstly, by working part time, they are able to pay all their bills without taking money out of their portfolio. This means their money can continue to grow. They have also eliminated a major living expense by keeping employer-paid health insurance. On top of this, they are saving a small amount into their 401ks to get their employer match.

Here's the math: This couple has roughly $500,000 of invested assets, a $300,000 mortgage, and roughly $2500 per month in living expenses. Their mortgage payments are also roughly $2500 per month.

In total, their net worth is expected to grow by...

• Not drawing down portfolio: $5000/mo

• Receiving interest and dividends: roughly $1300/mo

• Growth of principal: $2000/mo (estimated, not guaranteed)

• Value of Employer Healthcare: $1200/mo

• 401k contributions including match: $350/mo

Total: $9850/month.

This is why part time work for even one or two years before total retirement can be so valuable. If they wait, say, 18 months, they're $177,300 better off (18 months x 9850/month). That's a big deal. Moreover, they're 18 months closer to Medicare (lower expenses) and Social Security (more income).

Just as a quick disclaimer, your own situation may differ in several important ways, so it is important not to take this as investment or financial advice for your own life. These timelines and returns are estimates, used only for illustrative purposes. Nothing here is a guarantee that you can take to the bank, and I'm not recommending you do this.

My only hope is that this provides some interesting food for thought and highlights an interesting option for your financial plans.