Many people cannot retire at their planned age
Economic reasons are causing more people to work longer or return to work during retirement.
The average age of retirement is rising for both men and women, for a variety of reasons, according to a University of Michigan Institute for Social Research study. For some, it is a choice because they love working. However, a key reason for most is economics, including decreased employer health insurance benefits before Medicare eligibility at age 65, the increasing Social Security full retirement age from age 65 to 67 to receive benefits, and the fact that people are living longer and need more savings for the additional years. Others decide to return to work after already retiring. Let’s explore these decisions to help you devise a realistic strategy.
According to the Using Work to Your Advantage lesson from the National Endowment for Financial Education (NEFE), there are some benefits and negative aspects of working longer in preretirement and during retirement. Benefits include more years to accumulate retirement savings, fewer years to finance, more years to earn more and potentially larger Social Security benefits, continuing employer benefits and more credits toward an employer pension plan. Several personal benefits are feeling younger, contributing toward society, utilizing skills and avoiding boredom. Negative impacts of working longer on one’s retirement paycheck are higher income taxes, more work-related expenses, increased work-related stress or negative impacts on health, less recreational time and a less flexible schedule.
Some individuals do not completely stop working. Instead they go through a process called phased retirement. They stop working full-time and work part-time or part-year for the same employer, a different employer or even in a different field. This approach can keep most of the positive aspects of employment while reducing the downsides listed in the previous paragraph.
Another option is to consult or do freelance work by starting a small business venture. This allows staying engaged on one’s own schedule while generating some revenue. Two resources for entrepreneurs are the Small Business Administration and SCORE. A caution is to consider your cash flow if starting a small business when nearing retirement.
Sometimes circumstances change during retirement and it becomes necessary to have a contingency plan to fill income gaps. These might include health issues, caretaker duties for someone else, changes in the local economy and changes in marital status. Some individuals may elect to return to work.
Decisions about how long to work before retirement should weigh the pros and cons of working and not working. If possible, consider working until at least full retirement age. Have a fallback plan if your situation changes and you must stabilize a disruption in your long-term retirement plan.
Consider attending our free Retirement Planning online workshops held several times each year. The April series registration is http://msue.anr.msu.edu/events/retirement_planning_10. For more resources, Bill Hendrian wrote an excellent article on How Much Money Does It Take to Retire, posted 8/2/17 and my 2/7/17 article on Five tips for your “safe” retirement spending. Financial planning takes time, patience and discipline. Find more information about the reasons for and ways to save at MIMoneyHealth.org.