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What if Your Employer Wants You to Retire
Slowly or Come Back From Retirement? Be Ready with a Plan
Roughly 25 percent of the U.S. workforce is nearing
retirement age, according to a recent survey by Hewitt
Associates. This has important ramifications for the retirement
many Americans will have in the future.
The consulting firm reported that out of 140 mid-size and
large employers, 55 percent already had evaluated the impact
that potential retirements could have on their organization, and
61 percent have developed or will develop special programs to
retain targeted, near-retirement employees. Only one in five
said that phased retirement is critical to their company's human
resources strategy today — that number more than triples to 61
percent when employers look ahead 5 years.
What's phased retirement? Conventionally, it's the process of
allowing employees who have reached 59 ˝ to cut their hours
while voluntarily receiving a pro-rata portion of their pension
annuities. The company gets to keep its intellectual capital in
place a little longer while the worker gets to segue into
retirement gradually while accessing some of their retirement
assets along the way. Provisions in the Pension Protection Act
of 2006 made it easier for companies to create phased retirement
strategies.
Hewitt said that in addition to retaining current employees,
employers are reconsidering their policies toward rehiring
retirees. While 45 percent indicated they currently have
policies in place that limit the ability to rehire retirees, 46
percent said they were likely to review their rehiring policies
in the future.
What kind of consideration process should you undertake if
your employer offers this option? A good first step is to
consult a financial planner such as a CERTIFIED FINANCIAL
PLANNER™ professional to talk through the possibilities:
Envision how a phased retirement or return to your
workplace would affect your life. If you're reviewing your
retirement planning at any age, it makes sense to ask yourself
under what conditions you'd leave the workplace or return to it.
If you were offered phased retirement, how would you deal with
the cutback in responsibility and hours? Some people thrive on
work relationships and might not know what to do with
significant time outside the office. 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 total
retirement income. 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. Early retirement transitions can have some adverse
effects particularly where pensions are involved. But, if the
place where you spent your career comes calling, you might get
some attractive pension incentives to get people to come back.
Talk these options over with both financial and tax experts.
Can you negotiate for benefits? If you're
investigating post-retirement employers, including your own, see
what benefits you'll qualify for, and take a close look at
educational benefits that may allow you to upgrade your skills
for free. If your company will pay you to go to school and give
you the time to actually work on a degree, that might be a very
nice incentive indeed.
Consider insurance issues. If you are a retiree
returning to the workforce and you're already receiving Medicare
or covered by a "Medigap" policy, you may be able to
lower your costs or improve your 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 any new wrinkles in your
employer's 401(k) plan or any other tax-advantaged retirement
savings benefits, particularly if they match your contribution.
Don't miss a chance to enhance your retirement savings, even if
you've already retired once.
December 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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