Planning to work during retirement? Better plan ahead first.
Published on December 20, 2016
There are good reasons to work during one’s retirement years—staying active and engaged is always healthy and for some people, it’s a great time to explore new interests, and people can use their past professional experience to create new consultancies and other jobs for themselves in later years.
According to a Bankrate.com report, 70 percent of non-retired Americans say they plan to work as long as possible during retirement. Of this group, about a third (35 percent) said they plan to work because they need the money. Nearly half the people in this survey said they are worried about outliving their retirement savings. We’ve written before that Americans are not saving enough for their retirement (with many saving what amounts to nothing) so this is significant. More people in this group (38 percent) plan to continue working because they like to work.
The study also showed that very few Americans plan to retire early: just 13 percent of non-retired Americans hope to retire in their 50s, which is a big drop from 10 years ago, when 27 percent of non-retired people said they hoped to retire early.
Tax disincentives for those who continue to work
Of course, continuing to work means continuing to pay higher income taxes. Everyone’s financial picture is unique, so a consultation with your financial adviser is always a good idea as you head into those retirement years. Whether or not you have a pension plan (these are fast disappearing across Corporate America), what you have saved in your retirement plan, other assets, etc.—plus your health and ability to continue at a steady work pace—could also be factors in your decision.
On top of these considerations, the Bankrate.com report listed some government-imposed work disincentives that may end up discouraging some people from extending their work lives: explicit marginal taxation such as FICA payroll taxes, implicit taxation associated with the loss of government benefits, and increased premiums associated with increased earnings.
Are you also planning around your adult children’s needs?
The empty nest is very different today than it was a few decades ago. Although many people in their 50s often are at the peak of their earning potential, and therefore should be well positioned to bulk up their retirement savings after the kids fly the coop, the reality is quite different. Research from Boston College’s Center for Retirement Research showed that household savings through 401(k) plans only increase for empty nesters by a tiny 0.3 to 0.7 percentage points. This could be due to continued financial support (paying off student loans, helping with insurance payments, assisting with the down payment on that first home) which get in the way of increasing one’s retirement savings at a critical time in the person’s work life.
In a perfect world, people would continue working because they derive personal satisfaction out of the work itself and out of remaining productive. Unfortunately, many are working in retirement because they have to, for various reasons. One great way to plan for a more secure retirement is to open a self-directed retirement account. With self-direction, you make all your own investment decisions, based on investments you already know and understand.
The beauty of these retirement plans is that you can include a broad range of alternative assets that are not allowed in typical plans: real estate, mortgages, notes, secured loans, private placements, commodities, precious metals, and more. These options enable you to build a more diverse, and potentially more lucrative, retirement nest egg with all the same tax advantages of regular plans. You can self-direct a Roth or Traditional IRA, SEP IRA, SIMPLE IRA and in some cases (depending on your employer), a 401(k) plan.
Next Generation Trust Services is a third-party administrator of self-directed retirement plans, and our helpful professionals can answer your questions and get you started on the road to a self-directed retirement with you in control of your future, today.