Retirement is still something most people look forward to, but over the years, some of the reasons for anticipation have dwindled. During the industrial age, more people worked jobs requiring manual labor that were hard on the body.
By mid-century, many rank-and-file workers could look forward to a pension waiting for them upon retirement. Workers simply had to accumulate enough credits to retire knowing that a pension would provide income for the rest of their lives.
Now, physically demanding jobs are more of a rarity for pre-retirees, and modern-day ergonomic training is available to help ease the aches and pains of the daily grind. Pensions are also more uncommon, giving way to employee-contribution retirement vehicles like 401(k)s. Instead of looking forward to retiring, working longer can enable employees to save and invest longer.1
Workers today understand they may have to provide for a substantially greater share of their retirement income thanks to longer average lifespans. There’s also the possibility retirement could last multiple decades, and some retirees might miss the daily intellectual and social engagement a job provides.
This makes retirement income planning different than, say, college planning. When saving for a child’s education, parents have the advantage of knowing when the student will go to college and generally how many years he or she will be there. The “when” and “how long” are unknown factors when it comes to retirement.
As financial professionals, these are the types of variables we help address when advising clients. It is important to have the experience of helping clients make financial decisions and contingency plans throughout their retirement — experience we can use to guide the financial strategies we help our clients create every day.
Here are some other reasons today’s workers may be inclined to keep working past the traditional retirement age:
According to a recent survey, the most common financial reasons older employees work in retirement are to:2
- Give their nest egg more time to grow (19%)
- Earn “fun money” for discretionary purposes (31%)
- Leave a better legacy to heirs or charities (6%)
Increase Social Security Benefit
Sometimes it’s necessary for retirees to start taking Social Security benefits early, but that doesn’t mean they can’t continue or go back to work; nor does it mean they necessarily lock into a lower benefit for life. If you earn more than $16,920 in 2017 while receiving benefits prior to full retirement age, Social Security will deduct one dollar in benefits for every two dollars in earnings above $16,920.3 However, once you reach full retirement age, your benefit will be increased to account for benefits withheld due to earlier earnings and working once you reach full retirement age doesn’t affect your benefits. The agency will also recalculate your benefit based on your “new” highest 35 years of annual earnings, which could increase your overall benefit.4
Some seniors continue to work because their employer’s health insurance is better and less expensive than Medicare.5 Please note that even if you have coverage through a current or former employer, you may still need to make some important Medicare enrollment decisions.
Switch Jobs, Work Longer
Some people retire because they dislike their job. However, a new study revealed that when workers take the initiative to switch to a more enjoyable position say, in their 50s, they tend to work longer — increasing both their income potential and job satisfaction. That’s no small improvement on both fronts.6
Retirees have been known to go back to their old jobs because they get bored. At least one retiree observed that returning to work in a part-time capacity not only led him to enjoy the job more, but he felt better valued by his employer.7 We all know that sometimes we don’t appreciate what we have until it’s gone, and that can certainly apply to employers.
1 Kim Blanton. Center for Retirement Research at Boston College. May 25, 2017. “Fewer Older Americans Work Part-time.” http://squaredawayblog.bc.edu/squared-away/fewer-older-americans-work-part-time/. Accessed July 10, 2017.
2 Emily Brandon. U.S. News & World Report. Feb. 17, 2017. “8 Reasons to Work in Retirement.”
3 Social Security Administration. 2017. “Fact Sheet: 2017 Social Security Changes.” https://www.ssa.gov/news/press/factsheets/colafacts2017.pdf. Accessed Aug. 7, 2017.
4 ElderLawAnswers.com. April 1, 2016. “Incentives to Keep Working While You Collect Social Security.” https://www.elderlawanswers.com/incentives-to-keep-working-while-you-collect-social-security-15312. Accessed July 10, 2017.
5 Jean Chatsky. CNBC. Jan. 20, 2017. “Retirement doesn’t have to be the end: How working longer benefits you.” http://www.cnbc.com/2017/01/20/retirement-doesnt-have-to-be-the-end-how-working-longer-benefits-you.html. Accessed July 10, 2017.
6 Kim Blanton. Center for Retirement Research at Boston College. March 23, 2017. “The Benefits of Late-career Job Changes.” http://squaredawayblog.bc.edu/squared-away/the-benefits-of-late-career-job-changes/. Accessed July 10, 2017.
7 Kim Blanton. Center for Retirement Research at Boston College. April 20, 2017. “A Californian’s ‘Retirement’ is Part-Time.” http://squaredawayblog.bc.edu/squared-away/a-californians-retirement-is-part-time/. Accessed July 10, 2017.
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