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Why Working in Retirement Can Pay Dividends for Your Clients – If They Can Pull It Off

Why Working in Retirement Can Pay Dividends for Your Clients – If They Can Pull It Off

Over half of American workers say they plan to keep on working in retirement.

That finding from a recent survey by the Transamerica Center for Retirement Studies may sound like a contradiction in terms. If so, it's a contradiction that could pay significant dividends for the retirement plans of your clients.

A good plan should aim to assure financial security over a retirement that that could last 20 years or more. One of the best ways for your clients to do that is by working even a few years longer than than they may have planned.

That's much easier said than done in a recessionary economy where jobs are scarce. Yet working longer clearly is the game plan for many older workers. In 2010, labor participation rates among workers age 55-65 were at their highest level since 1975, according to the Employee Benefit Research Institute (EBRI).

Transamerica's survey – which queried more than 4,000 workers across all ages – found that 40 percent expect to work longer and retire at an older age, and 39 percent plan to retire after age 70 or not at all. And 54 percent plan to work in retirement. Of those who plan on working after retirement or age 65, the most commonly cited reason is economic necessity.

“The new retirement is working,” said Catherine Collinson, president of the Transamerica research unit.

Working at least until Social Security's Normal Retirement Age (NRA)—currently 66—can have a very positive impact, boosting income in retirement by a third, experts say. The reasons are straightforward:

– Working until the NRA means avoiding early-filing benefit reductions imposed by Social Security, and every year beyond the NRA adds 8 percent to monthly benefits—a credit that compounds powerfully over time with the program's annual cost-of-living-adjustments.

– During the additional working years, clients can continue to contribute to 401(k) plans, building additional balances that can be put to work in the market.

–Every additional year of income is a year in which your clients aren't drawing down retirement balances.

How big a boost does working longer provide? When I wrote The Hard Times Guide to Retirement Security, T. Rowe Price helped out by creating Monte Carlo simulations that project some concrete answers.

We created a hypothetical example of a woman with annual income of $75,000 and tax-deferred savings of $150,000 who, instead of retiring at 62 stays on the job for three additional years until age 65 and saves 15 percent of salary. The simulations showed she could boost annual retirement income from both Social Security and investments by a combined 58 percent, or $1,000 more per month.

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Here's the problem: It's very difficult to count on working longer as a key element of a retirement plan. The barriers to success include:

Age discrimination. It's a fact of life. And while the overall jobless rate is lower than average for older Americans, all the data suggest that it's much tougher for jobless 50-plus workers to find new jobs once they are unemployed.

Unexpected events. Despite the large number of workers who say they plan to stay on the job longer, EBRI's annual Retirement Confidence Survey has consistently found that a large percentage of retirees leave the work force earlier than planned. In 2011, 45 percent wound up retiring earlier than expected.

In most cases, these retirees cite negative reasons for leaving the work force earlier than expected, including health problems or disability (63 percent), changes at their company, such as downsizing or closure (23 percent), and having to care for a spouse or another family member (18 percent).

“The idea of planning not to retire is not a retirement strategy,” Collinson says. “Too often unforeseen circumstances can dictate otherwise.” Yet Transamerica found that only 13 percent of workers who plan to work past age 70 have a backup plan.

The key features of the 50-plus career landscape include:

A mixed job market. Even in a tough economy, older workers are valued in some industries. Technology-oriented companies that depend on experienced scientists and engineers are very worried about brain drain as the huge baby boomer generation retires. Many are scrambling to implement retention programs aimed at keeping these high-value knowledge workers on the job as long as possible. Some offer flexible work arrangements to accommodate the changing lifestyle needs of older employees.

Some surveys suggest that many employers do value the loyalty, experience and reliability of older workers. Some also say older workers are more productive and that their higher productivity offsets their higher compensation and benefit expenses.

Another bit of good news is the ongoing shift away from physical work in the U.S. labor market—a trend that benefits white-collar, older workers who want to stay on the job.

Click here for more details on the industries most hospitable to older workers.

Declining income. Older workers displaced by unemployment are finding that their wages fall 20 percent when they do find new jobs, according to research by The Urban Institute.

Entrepreneurship. A growing number of workers over age 50 who find themselves jobless and need to stay employed are choosing to become self-employed entrepreneurs. Entrepreneurs age 55 to 64 represent a rising share of start-up activity, according to the Kauffman Index of Entrepreneurial Activity, accounting for 23 percent of new entrepreneurs in 2010, up from 14.5 percent in 1996.

The tough jobs climate fuels an instinct many baby boomers harbored before the recession to strike out on their own, says Jeff Williams, CEO of Bizstarters, a company that provides coaching and training to older entrepreneurs.

“For five years before the recession, boomers were jumping into entrepreneurship like crazy,” he says. “They wanted to keep working, even if it wasn’t in a corporate environment—very few were saying they wanted to play golf five days a week. But now they also are saying they don’t have enough money. They’re much worse off than they were two years ago.”

Reinvention with social purpose. Growing numbers of aging boomers are launching second careers focused on social purpose, so-called “encore careers.” The phrase was coined by Civic Ventures, a California-based nonprofit think tank and incubator for social entrepreneurship led by Marc Freedman, author of The Big Shift: Navigating The New Stage Beyond Midlife. Freedman is one of the nation's leading thinkers on how America can redefine the second half of life with a sense of social and individual renewal.

Civic Ventures has launched a movement around encore careers with two main themes: second careers with meaning, and social entrepreneurship. It operates a social networking site, local events all over the country, and a high-profile annual cash award program called the Purpose Prize. Now in its sixth year, the award recognizes older career trailblazers who have demonstrated creative and effective work tackling social problems. It has evolved into a sort of Oscar for social entrepreneurship. Last year's winners were chosen from 1,400 nominees; five winners received $100,000 prizes, with another five recipients getting $50,000 awards.


Mark Miller is a journalist and author who writes about trends in retirement and aging. He has a special focus on how the baby boomer generation is revising its approach to money, careers and lifestyle after age 50.

Mark edits and publishes, featured as one of the best retirement planning sites on the web in the May 2010 issue of Money Magazine. He writes Retire Smart, a syndicated weekly newspaper column and also contributes weekly to He is the author of The Hard Times Guide to Retirement Security: Practical Strategies for Money, Work and Living (John Wiley & Sons, 2010).

Click here to download a free chapter of The Hard Times Guide on How to Get the Most from Social Security.

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