Does ‘one more year’ of work really matter when it comes to retirement safety in America? Yes — it could be the biggest retirement decision you make. Here’s why

Say you’re 67 years old, with $1.5 million in retirement savings, including your 401(k), investment retirement account (IRA) and other accounts in your investment portfolio. You’ve also recently paid off your mortgage.

Since you’ve reached your full retirement age (FRA), you’ll receive 100% of your Social Security retirement benefit, bringing in $2,800 per month on top of your personal savings. So, what does it mean to work one more year?

Should I work one more year?

The average American household spends $6,440 a month (or $77,280 a year) on living expenses, including housing, transportation, food, insurance, health care and entertainment, according to the most recent Consumer Expenditure Survey from the U.S. Bureau of Labor Statistics (BLS).

However, if you’ve already paid off your mortgage, your expenses may be significantly less than the national average.

Let’s say, for example, you expect to live off $4,000 a month in retirement. On top of your living expenses, you want to account for things such as travel, hobbies and entertainment — let’s allot $2,000 a month — and, of course, a cushion in your retirement budget for out-of-pocket medical expenses — let’s suppose $500 a month.

That means you’ll need an annual retirement income of $78,000 a year (or $6,500 a month). However, you’ll also need to account for inflation throughout retirement — you can expect your living expenses and medical costs to go up over time.

If you work one extra year, you’ll be able to put more money into savings.

Say, for example, you max out your 401(k) at work; if your employer matches your contributions, you can further boost those savings. You also have one more year to grow your investment portfolio before drawing it down in retirement. Staying invested longer is one way to hedge against inflation.

Plus, if you keep working and delay your Social Security retirement benefit by a year, you’ll receive delayed retirement credits, which provide an 8% increase in monthly benefits for each year you delay after FRA.

That means, if your benefit is $2,800 at FRA, you’ll get a permanent bump of 8% each year you delay until age 70 (the latest you can claim). So, if you delay for a year after your FRA, you’ll get a monthly check of $3,024. If you delay until 70, that jumps to $3,472. That’s more than half of your total monthly budget of $6,500 — before you factor in your personal retirement savings.

What else should I consider?

You can estimate how much you’d be able to withdraw each month in retirement by working with a financial adviser or using retirement planning tools. For example, using this calculator, you could estimate how long your retirement savings will last if you have $1.5 million in savings and a life expectancy of 95, assuming an average investment return of 6% and an annual inflation rate of 3%.

Based on those assumptions, the amount you could withdraw monthly at age 67 — increasing 3% annually to adjust for inflation and to maintain your purchasing power — is $6,572. If you retire one year later, at age 68, and continue to invest $500 a month during your final working year, the amount you can withdraw monthly at age 68 (increasing 3% annually) is $7,164.

That’s an additional $592 a month. Of course, this also depends on your investment returns, tax planning strategy and other factors, but it gives you a general idea.

While it may make financial sense to wait another year before retiring, it’s not the only consideration.