Glenn Kenes: The value of working an extra year or two before retirement
FOR YOUR INFORMATION
“Savings Medicare Beneficiaries Need for Health Expenses: Some Couples Could Need as Much as $350,000,” Employee Benefit Research Institute. Jan. 31, 2017.
The Pay Yourself in Retirement study was created by Ameriprise Financial utilizing survey responses from 1,305 Americans ages 55 to 75 with investable assets of at least $100,000. The online survey was commissioned by Ameriprise Financial, Inc., and conducted by Artemis Strategy Group from November 16-22, 2015.
My last article discussed steps to handle market volatility as you approach retirement. Simply making the decision to retire is a big decision that we have assisted many clients in making.
To retire or not retire — that is the question many baby boomers are pondering as they approach the traditional age of retirement. On one hand, they want to enjoy the retirement they worked so hard for, yet on the other, they may not be ready to leave the workforce and live off their savings. If you are on the fence about whether to continue your career, transition to a new full or part-time role or retire, you are not alone. Consider the following benefits of working another year or more before retirement.
Working longer can give you the opportunity to boost your nest egg.
Continuing to earn a paycheck can allow you more time to save and invest for your future. You can use this extended earning period to make catch-up contributions to your retirement accounts and maximize employer contributions to your 401(k), if applicable. Allowing your investments to continue to grow can strengthen your ability to weather potential market volatility down the road. Additional savings may also give you confidence that you’ll have enough money to live the lifestyle you want in retirement.
Working longer often means less time relying on your retirement savings.
According to the Social Security Administration, if you turn 65 today you can expect to live, on average, until age 84 if you’re a man and until age 86 if you’re a woman. Furthermore, one in four 65-year-olds lives past age 90. This longevity means you have a good chance of living 20 or even 40 years in retirement. Spending extra time in the workforce can help you avoid dipping into your retirement fund early – which could make a difference in your total savings over the long-term.
Working longer can allow you time to plan your healthcare strategy.
Your potential for a long retirement means you’ll also need to plan for increased healthcare costs. A recent survey by the Employee Benefit Research Institute found that a couple could spend up to $360,000 on healthcare in retirement, and this sum doesn’t factor in expenses not covered by Medicare and long-term care.
Continuing to work gives you time to figure out your game plan for managing these rising costs. Starting at age 65, you can register for Medicare. Do your research to ensure you understand what expenses are covered by Medicare Parts A and B, and drug insurance (Part D) and consider if you need to purchase supplemental insurance to fill in any coverage gaps. Also, review your long-term care policy, health savings account (HSA) or other designated healthcare funds, if you have them, so that you know how you can handle potential health expenses. Share your plans with key family members so they understand your wishes, and consider making them formalized with a healthcare directive.
Working longer can give you time to recreate your paycheck in retirement.
Retirement income often comes from a complex patchwork of sources, which can make recreating your paycheck seem daunting. But there’s hope: an Ameriprise study found that Baby Boomers who created a plan for their income were three times more likely to feel completely confident they’ve saved enough money to last throughout retirement.
As part of the process, you’ll need to choose whether to apply for Social Security benefits right away or wait in exchange for a larger monthly check. You’ll also decide which accounts to tap into first, and which sources you’ll reserve for income down the road. You may have a variety of sources to consider, such as IRAs, 401(k)s, pensions, stocks, bonds, annuities and Certificates of Deposit (CDs). You’ll also need to factor required minimum distributions (RMDs) for your non-Roth retirement accounts into your income equation. Starting at age 70½ , generally you will need to draw down a certain amount of your assets. Withdrawing the incorrect amount can result in costly penalties, so it’s important to calculate it right. Taking the time to develop your strategy can help you minimize withdrawals and keep more of your money working for you over time.
Working longer gives you time to figure out your next step.
Crafting a retirement plan is about more than the money. It’s also about deciding what activities you’ll pursue to make your retirement meaningful. Use the last months of your career to plan your next chapter. If you’re not ready to leave the workforce, explore your options for part-time or consulting work. Or, consider community service, board or advocacy roles you may not have had time for while working a full-time job.
Extra time in the workforce can help supplement your savings and fortify your ability to afford a more rewarding retirement. Work with your financial advisor and tax professional to test various retirement scenarios and determine the right time for you to leave the workforce.
Glenn Kenes, CRPC, is a private wealth advisor and managing director of Barber Kenes Retirement Solutions a private wealth advisory practice of Ameriprise Financial Services, Inc. in Auburn, CA. Contact him at: BKRetirementSolutions.com or 530-823-0710, 470 Nevada Street, Ste. 200, Auburn.
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