OCEAN CITY — Today, working in retirement isn’t a purely financial decision. Americans are living longer, and in a world where the average 65-year-old can expect to live well into his or her 80s, what were once known as the post-work years have become the springboard for new, fulfilling journeys — each different from the other.
“Our whole concept of retirement is changing,” says Bill Hunter, director, Personal Retirement Solutions at Bank of America Merrill Lynch. “People want to stay vital.”
While everyone’s goals and circumstances will be different when it comes to work and retirement, it’s also a fact that continuing to work will affect your assets and may require new, careful strategies for managing your income. Here are some things to think about when considering working into your later years.
New careers come with new startup costs. Perhaps retirement is your chance to transform an interest or a passion into part-time work. However, that transition can come with a price tag, and it’s best to be prepared for it in advance — ideally while you’re employed and outlining what your income and spending needs will be during your retirement years
Relocate with an eye toward your work life. The best places to retire may not be the best places for your new business. There are many reasons to consider relocating in retirement: warmer weather, being closer to children and grandkids, and lower property taxes, to name a few. If working in retirement is a priority for you, remember that location can have a major impact on expenses and quality of life. There are states that offer low unemployment, high job growth potential, a lower cost of living and a favorable tax environment—but they may not always be the best place to pursue the type of postretirement career you’re considering.
Rethink when you take Social Security. If your new paycheck allows you to delay taking Social Security, you should consider it. Postponing Social Security payments can significantly boost your available retirement income when you most need it. More than 80% of Americans elect to take Social Security as soon as they become eligible, at age 62, Hunter says. But there are several reasons to delay. For every $2 you earn above the annual earnings limit ($15,120 in 2013), $1 in benefits will be withheld. This continues until the year when you will reach full retirement age—now 66 or 67, depending on when you were born. At that point, the formula changes: $1 in benefits is withheld for every $3 of earnings above $40,080, until the month prior to when you actually reach full retirement age. (Once you do reach full retirement age, nothing will be withheld, no matter how much you earn.)
Take a close look at your insurance needs. The cost of health insurance rises with age and changes in health status. That means it could well be a significant expense, especially during the years before you turn 65 and qualify for Medicare. If you retire from your primary career before then and work independently, you’ll need a plan for covering your medical and dental insurance. COBRA coverage may be available through your current employer’s health plan; if so, you may be able to purchase as much as 18 months’ worth at a lower premium than what you’d pay if you were buying on the open market.
The key is to make sure you go into your second act with “eyes wide open,” he adds. That means looking at how the various aspects of your proposed plan affect one another. Your financial advisor can help you run through the scenarios you may be considering and show you how various life changes could affect them so that you can create a strategy that makes sense for your situation.
(The writer is a senior financial advisor and can be reached at 410-213-8520.)