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To Retire or Un-Retire? Ways to Consider
the Question
Add retirement to the long list of things Baby Boomers are
changing their minds about.
An April, 2006 study by Zogby International and the MetLife
Mature Market Institute found that a significant number of older
Americans are revising their ideas about their post-career
years. The study found that 78 percent of respondents aged 55-59
are working or looking for work, as are 60 percent of 60-65
year-olds and 37 percent of 66-70 year-olds. Across all three
age groups, roughly 15 percent of workers have actually accepted
retirement benefits from a previous employer, and then chose to
return to work (or are seeking work). Called the "working
retired," these workers represent 11 percent of 55-59
year-olds, 16 percent of 60-65 year-olds and 19 percent of 66-70
year-olds.
A decision to return to work isn't necessarily a negative.
It's not always a sign that older Americans are having trouble
making ends meet. Some work simply because they want to change
careers for a new challenge.
Yet delaying retirement or returning to the workforce from
retirement is a decision that should be made after a thorough
financial review.
According to MetLife, most older employees expect to stop
working for pay at the age of 70. The best time to talk about
working in retirement is at least five years before you retire.
If you're working with a good advisor, they'll force you to
answer key questions about the retirement you want to have. You
might discover that working in retirement is something you want
to avoid at all costs, and you'll have to accelerate your
savings and investments to avoid it. Here are some critical
points to consider in a working retirement:
Make working retirement a variable in your planning.
If you're in your early 50s and reviewing your retirement
planning so far, it makes sense to ask yourself under what
conditions you'd return to the workplace. Maybe you want to take
a year off after you retire from your current job and then
you'll go back into another career. You obviously need to know
based on current projections how much money you're likely to
gather from savings and other retirement resources. Then you
need to consider how much money you'd be satisfied making in
your post-retirement working life and for how many years you'll
earn that income.
Check what returning to work will do to your pension.
Early retirement transitions can have some adverse effects
particularly where pensions are involved. Get some advice here.
Back to school? You need to plan. Seniors may get
early-bird specials at restaurants, but colleges aren't giving
away free tuition. And if you haven't had to put your own kid
through school, you'll be shocked at how much college costs have
risen in the past 30-plus years. If you're investigating
post-retirement employers, see if you can qualify for
educational benefits to back up any out-of-pocket costs. Also,
some colleges do offer discounted tuition or free classes for
seniors.
Talk to a tax professional before you make a move. Tax
issues shouldn't determine your ambitions and goals, but it's
important to consider the impact work-related income will have
on your retirement. Many retirees find that it doesn't take much
post-retirement income to tip them into a higher bracket. Look
for ways to control the taxes you'll ultimately pay, including
continued participation in qualified plans, and IRAs, and other
tax-favored accumulation vehicles. And don't forget to discuss
your Social Security options.
Consider insurance issues. If a retiree returning to
the workforce is already receiving Medicare or covered by a
"Medigap" policy, they may be able to lower their
costs or improve their coverage by accepting group coverage as
primary underwriter of their medical expenses. Since people over
age 55 are generally the greatest users of the healthcare
system, coverage issues are particularly important to run by a
financial expert.
Keep saving. If you return to the workplace, see what
you can do to take advantage of your new employer's 401(k) plan
or any other tax-advantaged retirement savings benefit,
particularly if an employer matches your contribution. Don't
miss a chance to enhance your retirement savings.
June 2008 — This column is produced by the Financial
Planning Association, the membership organization for the
financial planning community, and is provided by Don McCarty of
Financial Decision Partners, a local member of the FPA.
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