Why Work When You Can Retire?
Two common financial reasons Americans work beyond retirement age are high debt and the concern of running out of money. Home loans with low down payments and large mortgages have led to a generation with higher pre-retirement debt levels than ever before. 1
Nearly half of people between the ages of 62 and 66 keep working because they don’t think they’ve saved enough to provide retirement income for the rest of their lives. Interestingly, the people retiring later tend to be better educated, have fewer children and a higher divorce rate. Furthermore, an increasing number of women in their 50s and 60s say they plan to work past age 65.2
However, there are some positive aspects to working longer apart from money concerns. For example, research shows that people who work longer tend to score higher on memory tests. Retirees from European countries offering government-sponsored benefits at an earlier age tended to score lower on these tests than Americans of the same age. This seems to indicate that the ongoing mental stimulation at a job could help older people retain cognitive faculties longer than immediately retiring.3
Studies also show that holding a job outside the home lends itself to larger, more active social networks, contributing to better health and sense of wellbeing. If you have questions or concerns about your financial strategy, give us a call and we’ll be happy to set up a time to talk through your unique situation.4
1 Paola Scommegna. Population Reference Bureau. April 23, 2018. “Will More Baby Boomers Delay Retirement?” https://www.prb.org/will-more-baby-boomers-delay-retirement/ . Accessed May 25, 2018.
3 Paola Scommegna. Population Reference Bureau. April 23, 2018. “Is Working Longer Good for Older Americans’ Health?” https://www.prb.org/is-working-longer-good-for-older-americans-health/. Accessed May 25, 2018.
Managing Money Through Retirement
We tend to think of retirement as the last stage of our lifetime. But from a financial viewpoint, that’s not entirely accurate. Instead, many financial professionals advise that we plan for retirement as a three-stage process.1
When people initially retire, they tend to spend more money. They might travel, remodel the house, splurge on children and grandchildren, and enjoy a robust lifestyle that includes dining out and entertainment. That’s the first stage. At some point, retirees tend to slow down. It could be due to mobility or health issues, or just a desire to travel less and spend more time at home. During this second stage of retirement, people typically spend less money. However, during the third and final stage of retirement, people generally encounter more health issues. Their spending ramps up again as they pay for more prescriptions, rehabilitations and other medical expenses.2
It’s important to keep these stages in mind when developing a financial strategy. For example, a more aggressive equity allocation at least through the first stage may help outpace inflation and provide the opportunity for more income in the latter years. Of course, it’s important to consider any investment strategy within the context of your own goals, risk tolerance, investment timeline and the composition of your overall portfolio. The following are a few strategies worth considering to help create a financial strategy designed to accumulate enough money to last throughout what could potentially be a 30-year retirement span.3
Optimize Retirement Accounts
- 401(k) plan — $18,500/year; $24,500 for those 50 and older4
- If you have multiple retirement accounts, consider consolidating to reduce fees and simplify distributions
- More time to save for travel and other luxuries
- Enjoy social and intellectual benefits sometimes lost with full retirement
- Balance market risk with the risk of outliving savings
Multiple Income Streams
- Contemplate the optimum Social Security and pension strategies for your circumstances
1 WealthManagement.com. Aug. 17, 2016. “Navigating the Three Phases of Retirement.” http://www.wealthmanagement.com/node/58276. Accessed May 25, 2018.
The Value of Cash Value
Not only can permanent life insurance provide a death benefit to loved ones, but it also offers a cash value account that can accumulate funds throughout a period of time. While the premiums for permanent life insurance typically are higher than those for term insurance, the policy may include savings and various interest-crediting options, providing another dimension to an overall retirement strategy.1
For example, a retiree may be able to withdraw from the policy’s cash value account via policy loans to supplement retirement income in years when poor investment performance might otherwise require tapping principal from a portfolio. In addition, policy loans from a permanent life insurance policy are generally income tax free.2
It’s important to note that policy loans and withdrawals will reduce the available cash value and death benefit and may cause the policy to lapse, or affect guarantees against lapse. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax. Tax laws are subject to change; consult a tax professional about your personal situation.
Life insurance is subject to health underwriting and, in some cases, financial underwriting. Guarantees are backed by the financial strength and claims-paying ability of the issuing insurer.
1 Everplans. “The Benefits And Drawbacks Of Permanent Life Insurance.” https://www.everplans.com/articles/the-benefits-and-drawbacks-of-permanent-life-insurance . Accessed May 25, 2018.