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What if Your Employer Doesn't Want You to
Retire? Planning for a Second - or Third - Career Act
The mass Baby Boomer retirement anticipated over the next
20-30 years is expected to create an overall U.S. labor shortage
of 35 million workers. That's potentially good news for future
retirees who either want to work or need to work due to the
recent investment downturn.
A recent study by Hewitt Associates showed 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.
Phased retirement might be one of the great opportunities to
repair the retirement debacle so many have suffered.
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 would be 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 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.
See if there's an opportunity to reshape a job or design a
position from scratch. Older workers may not have the energy
of their 20 and 30-year-old brethren, or maybe they just don't
want to spend their energy the same way. Older workers should be
proactive about suggesting particular work structures that meet
the company's needs while accommodating the worker's personal
objectives. Telecommuting, flex time, shortened hours — these
are options that might work as well for older workers as the
rest of the remaining team.
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, they might
offer 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.
Can you add to your existing pension? Some governments
allow returning employees who have already retired to earn
additional pension benefits or otherwise enhance their
retirement nest egg. Make sure you understand what these
opportunities might be and get some advice on how it might
affect your own finances.
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.
July 2009 — 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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