More people are working past the traditional retirement age. Almost 20% of Americans 65 and older work full or part-time, compared to 13% in 2000, according to the US Bureau of Labor Statistics.1 And those numbers are likely to continue to rise: 70% of workers approaching retirement age say they plan to work in retirement, according to a 2014 AARP study.2
Working in retirement comes with many benefits, financial and otherwise, but it may also present new challenges. Start working with your clients now to help them prepare for a working retirement that suits their particular needs and goals.
Explore the Options
Start by talking with your clients about the range of jobs available to them in retirement. Some may want to continue the work they've been doing in some capacity, whether independently or with a long-time employer. Some companies allow retiring workers to cut back on hours and add flexibility, especially for jobs that require expertise that can be gained only through years of experience. For clients who want to leave their current employer but remain in their field, consulting may be an appealing option. Experienced workers often have a large network to tap into, and industry associations and conferences offer further opportunities for finding consulting work.
Others may want to pursue new interests in retirement. For these clients, so-called "encore careers" allow them to learn new skills, often with the goal of serving the community. More than 4.5 million Americans between 50 and 70 say they work in encore careers, according to a 2014 survey from Encore.org.3 These careers can be anything from tutoring to fundraising to founding a nonprofit organization, and their rewards are often as much psychological as financial—though the financial benefits shouldn’t be overlooked.
Highlight the Benefits
Working longer not only brings in extra income, potentially reducing the number of years your clients will have to pay for retirement, it allows their savings more time for potential growth, giving them greater financial security. Workers can continue making contributions to their traditional IRAs until they reach 70½, and to Roth IRAs for as long as they like, up to $6,500 per year if they're older than 50. If your clients participate in a 401(k) and are older than 50, they can continue to contribute up to $24,000 per year, even if they're working part-time.
Working in retirement may also allow your clients to delay collecting Social Security. For every year through age 70 they postpone these benefits past their full retirement age—66 or 67 for those born in 1943 or after—they'll collect 8% more annually.4
Plan for Challenges
An extended working life can help provide a safety net and pay for luxuries like travel or home improvement, but it also comes with added financial challenges. Clients who have been taking advantage of their full-time employer's healthcare and then find part-time work with a new employer or start working for themselves will likely have to pay more for healthcare, an unpredictable expense that can add up quickly, even after Medicare kicks in at age 65. Clients with pension plans should make sure they understand how their benefits are determined, to avoid inadvertently freezing or shrinking their take-home pay as a result of their plans to continue working. You should also look closely at your clients' tax situation, as working in retirement could push your clients into a higher tax bracket.
For an added layer of security through retirement, encourage your clients to consider a protected lifetime income source such as a variable annuity, which isn't subject to the ups and downs of the market. Working in retirement should be part of a well-rounded financial strategy, and it's never too early to start working with your clients to start putting it together.
1 https://www.bls.gov/cps/demographics.htm#older
2 http://www.aarp.org/work/working-after-retirement/info-2015/work-over-retirement-happiness.html
3 http://encore.org/wp-content/uploads/files/2014EncoreResearchOverview.pdf
4 https://www.ssa.gov/planners/retire/1943-delay.html
