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Making The Golden Years Good

Making The Golden Years Good

Your Boomer clients may have to decide whether to continue working into their planned retirement. Here's how to help them think about it.

Clients on the cusp of retirement often have two simultaneous but diametrically opposed reactions to the idea of leaving their jobs for good.

They're thrilled with the prospect of enjoying the rest of their days as they please, but worried that the amount of time they have to spend in retirement may exceed the amount of money they have to spend in retirement.

Their fears may be real, but working longer may not be as valuable to the longevity of their portfolios as they believe. Here are a few small reasons Boomer clients should continue working, and one big reason they should retire sooner rather than later.

Understandable worries

According the April edition of the Merrill Lynch Affluent Insights Quarterly, 73 percent of those aged 51 to 64 with more than $250,000 in investable assets are concerned about their retirement assets lasting as long as they do.

Forty percent of the same group expect to retire later than they did just a year ago — even though it's safe to say that their portfolios were likely quite a bit higher this year, compared to what the accounts might have been worth in the spring of 2009.

After a deep and prolonged recession, as well as a bear market to match, many people in this group likely feel lucky to have a job, let alone assets about which to worry.

But some have had enough of the increased pressure and stress, and are looking forward to quitting their jobs and enjoying retirement while their eyes, ears, knees, and minds allow them to.

Why They Should Stay

The first and most obvious reason clients should continue working is if they simply don't have enough money to support their projected lifestyles, even when they've used conservative projections for rates of return, and liberal guesses for living expenses and life expectancy.

The second and almost-as-important factor is that they are under age 65, and therefore ineligible for Medicare. If their employers don't offer retiree health insurance, and it's prohibitively expensive (or impossible) to obtain coverage on their own, they likely have no choice but to work solely for the health care benefits.

The third motivation to stay on the jobs is that it may boost their Social Security benefits down the road. The extra income could allow the clients to delay initiating the benefit, and could also increase the earnings history on which the benefit is based.

However, waiting to take the Social Security will likely add no more than 8 percent to their monthly checks for each year they delay. Plus, their earnings history is based on their 35 highest-earning years. So the additions to their monthly Social Security checks from one more year of work may not be substantial — perhaps a couple hundred dollars more per month.

Why To Leave

Common sense says that one more year of working can cover living expenses for that year, free up some extra cash to stash in the retirement accounts, and most certainly gives the retiree one less year of retirement to cover.

But the economic worth of the extra work may not exceed the value of one more year of freedom. Let's say you have a 60 year-old working client with $1 million in liquid assets and earnings of $80,000 per year. He typically has $20,000 left over after taxes and living expenses.

He wants to retire now and has health insurance coverage until 65, when Medicare will kick in. But $80,000 in gross annual pay seems like a lot of money to leave on the table, and he wants to know how much damage leaving today will do to his future spending.

If we assume he will live to age 85, earn a hypothetical annual return of 5 percent on his money, and give himself a 3 percent annual boost in living expenses, he can spend about $4,158 per month in today's dollars over the next twenty-five years, after which his savings will be depleted.

Working one more year to age 61 seems to be a no-brainer, as he not only covers his living expenses during the year, but also allows his portfolio to grow untouched by 5 percent, and provides another $20,000 to add to his savings. Plus, he now has twenty-four years of retirement to support, rather than twenty-five.

How much does his extra year of earning and saving buy him in retirement? If he retires at 61 with $1.07 million in assets, still earns 5 percent annually with 3 percent increases in his expenses until he dies at age 85, he can spend about $4,460 per month in today's dollars.

That's right: a year's worth of work (and retiring a year closer to death) gives him an extra $302 per month to spend over the rest of his life. Ten bucks a day.

In other words, he can work for another year and go out for breakfast every day for the rest of life, or quit now, and make his bacon and eggs at home.

Answering objections

Confronted with this astounding information, the client may wisely protest that he might live longer than 85, and therefore will need more money on which to survive.

That's true, but it also means that the benefits of working one more year are spread out over a longer time frame, and therefore diminish even further.

And the flip side to that argument is that he may not live as long as 85, in which case his time would become even more valuable than his money.

Writer's BIO:

Kevin McKinley
CFP© is Principal/Owner of McKinley Money LLC, an independent registered investment advisor. He is also the author of the book Make Your Kid a Millionaire (Simon & Schuster), and provides speaking and consulting services on family financial planning topics. Find out more at

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