Retirement used to mean the end of work. Not anymore. More and more clients are expecting to work in retirement. Today, 40% of people age 55+ are working — a level of engagement and productivity among older people not seen since the 1960s.¹ This is not some passing fad: The numbers of working retirees will very likely continue to increase in the years ahead. 73 percent of pre-retirees say they expect to work during their retirement years.² 

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So why are people working longer? Partly it’s because we are living longer. With rising life expectancy, people can now expect to live ten, twenty, thirty years or more in retirement. Funding all these years without any work can be a challenge for most of us. And if you couple rising life expectancy with today’s cost of living and long-term economic uncertainties, it’s no wonder many people seek to continue earning an income to fund their retirement hopes and dreams. Because working longer enables clients to save more and delay withdrawals from retirement accounts, the financial benefit of working even for short periods in retirement can be significant. For example, research shows that working just one more month in retirement has the same impact as increasing retirement savings by a percentage for ten years prior to retiring.³ 

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But even beyond the money, there are other important reasons to consider working in retirement. Waking up with an energizing purpose, having the stimulation of daily challenges and successes, and interacting with colleagues and customers can help keep life interesting and fulfilling during retirement. In fact, people are twice as likely to say they will work in retirement because they want to, not because they have to.4 Moreover, studies have shown that social interaction and continued mental stimulation have a significant role in keeping us mentally and physically healthy in our later years. In fact, not working can be a significant health risk. According to the Harvard School of Public Health, when people retire they are 40% more likely to have heart attack or stroke than if they had kept working.5 This increase is most pronounced during the first year of retirement. On top of the health risk, people leaving the workforce also face a greater risk of loneliness, isolation, and boredom.

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But clients who are thinking about working in retirement confront new dimensions and complexities in their retirement planning and preparation. What kind of work do they envision doing in retirement? How will they balance their work and leisure pursuits? Do they expect to work full-time, part-time, or cycle between periods of work and leisure? How might work affect their retirement savings and income strategies? What are the implications for benefits and taxes? Do they have a financial “Plan B” if health challenges or other difficulties prevent them from working as long as they expect?

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Preparing for Work in Retirement

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Careful planning and preparation can help your clients optimize their strategy to ensure their retirement work is as fulfilling and rewarding as possible. Your clients will need advice and guidance to not only envision how they might want to work in retirement, but also how to navigate the financial complexities of retirement that may include new work and career ambitions. Below are six steps to help your clients prepare for working in retirement.

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Step 1: Find the dream career.

When graduating from school, many of us had career counselors, parents, and other resources to help us figure out our potential career paths. Choosing potential retirement career paths is an opportunity for even more exploration and creativity. Your clients might start by asking themselves what their greatest passions are. What times in their career have they been most happy and motivated? Is there a passion or dream from their younger years they might make a reality through a retirement career? Is there a hobby that might become their next career? Expanding their business networks, taking classes, volunteering or working part-time in a field related to work they may want to do, as well as talking with other working retirees to better understand paths they took toward a fulfilling retirement career can also be helpful next steps.

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Many clients may find retirement the perfect time to launch their own entrepreneurial venture. Although some might think the typical entrepreneur is a Silicon Valley youngster, older adults, with their superior financial resources and experience, are far more likely to start successful businesses. People age 45+ are almost twice as likely to start a business as people under age 35.6 The new “gig” economy has also opened new doors for retirees. 31 percent of individuals who work exclusively in the gig economy are age 55+, and a third of them are retired.7

 

Step 2: Retool and refresh skills.

With vast experience, knowledge, and connections, older workers have some powerful advantages over younger workers. But the workplace is evolving faster than ever, and staying abreast of rapid technology and business changes is a challenge for everyone. For your clients to succeed in their retirement career, they may need to upgrade skills and capabilities, especially if they have taken a break from work. Just 42% of pre-retirees and retirees say they are sufficiently keeping their skills up-to-date to remain competitive in the workplace.8 Many local universities and community schools offer adult classes in everything from management to technology. Online courses and resources can also help them re-gear for work in retirement.

 

Step 3: Talk with family about balancing time in retirement.

Your client’s family may have different expectations regarding how work and leisure will be distributed during retirement. One spouse may be envisioning a retirement sunning on the beaches of the Caribbean while the other is eyeing their next business success. Having a conversation early will help them share priorities and plan effectively.

 

Step 4: Talk with a pre-retirement employer about retirement work options.

Your client’s employer may have opportunities for continued work that your client finds more motivating, or may offer work on a more flexible basis, such as phased retirement, part-time or seasonal work, sabbaticals, and mentorship positions. Today, one in five employers offers some form of informal or formal phased retirement program. It is likely that more employers will offer these types of programs in the coming years. About half (47 percent) of employers say that many of their employees are seeking a phased transition into retirement including reducing hours or new, more flexible career paths.9

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Step 5: Estimate how income from working in retirement might affect retirement planning.

Continued work can play an important role in helping your clients bolster their nest egg, delaying drawing down on savings, and reducing the amount they need to save for retirement. Your clients will also need to understand how working in retirement might affect retirement income planning and tax strategy. The extra earnings could push your client unexpectedly into a higher tax bracket. Your clients may also need guidance on how to invest extra earnings (for example in Roth IRAs which have no age limits).

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Moreover, your clients should also have contingency plans in case they are not able to work as long as they anticipate. Almost half (48%) of retirees said they retired earlier than they planned, either for health reasons (41%), changes at their company (26%), or having to care for a spouse or another family member (14%).10 

 

Step 6: Assess how working in retirement might affect Social Security, Medicare, and other benefits.

Some benefits may be reduced or delayed due to employment income. ​For example, earned income could delay Social Security payouts. If your client claims Social Security before their full retirement age, income above $17,040 (in 2018) will reduce benefits (though the payout will be recouped later). Your client will also need your guidance on how earned income might affect Medicare benefits and, in some cases, employer pensions.

 

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This article is a publication of Life Stage Insights, a client discovery and engagement system for financial advisors.

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Footnotes

1. US Bureau of Labor Statistics

2. Gallup, "Most U.S. Employed Adults Plan to Work Past Retirement Age", May 8, 2017

3. New York Times, "Working Longer May Benefit Your Health." March 3, 2017

4. Pew Research, Working After Retirement: The Gap Between Expectations and Reality, 2010

5. Harvard Medical School, "Is retirement good for health or bad for it?", 2015

6. Kauffman Index of Entrepreneurial Activity, 2014

7. ​Prudential Financial, "Gig Workers in America", 2017

8. TransAmerica Center for Retirement Studies, "Wishful Thinking or Within Reach: Three Generations Prepare for Retirement,” 2017

9. SHRM, Employee Benefits Report, 2017

10. EBRI, 2017 Retirement Confidence Survey, 2017

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