Sunday, November 21, 2010

Working in Retirement - Overview

Once upon a time "retirement" meant dropping out of the workforce entirely to pursue leisure or rest. In fact, the dictionary defines the word "retire" as "1.) To withdraw, as for rest or seclusion, 2) To go to bed, 3) To withdraw from one's occupation, business, or office; stop working. 4) To fall back or retreat, as from battle. 5) To move back or away; recede."

However, work and retirement are no longer mutually exclusive ideas. The current generation of retirees is redefining what it means to be retired – both out of necessity and choice. Many recent surveys show that 60 – 90 percent of retirees will work after their retirement.

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Why are People Working in Retirement?

Necessity: There are numerous advantages of continuing to work – the main one being that you can continue to build retirement assets while delaying your need to utilize those assets.

Rising healthcare costs, lack of adequate retirement assets, reduction of pension and retiree health benefits, increasing longevity and rising living expenses mean that many people need to work in retirement.

Desire: Many retirees want to work in retirement. This group feels like they wish to contribute to and engage with society through work.

The desire to stay mentally active plays a major role in people's decision to work in retirement. But so do financial concerns. The AARP asked 2,001 individuals between 50 and 70 years old who work full- or part-time why they do it. The need for money was the primary response.

What is surprising, says AARP research director Jeff Love, is how much longer people plan to work. In 1997, AARP started asking people at what age they planned to retire, and the response was mid- to late 60s. In the latest survey, almost half the respondents said they plan to work into their 70s or beyond. Although the need for money is a driving force, some people would continue to work even if they didn't need the money, Love says.

Baby boomers -- in their 50s now -- will have a harder time letting go of their jobs for the leisure of retirement because their identities are tied to what they do professionally, Love says. "Their jobs mean a lot to them." And they'll be physically able to work longer thanks to advances in medicine and healthier lifestyles that are extending life expectancies.

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The Pros

Whether you need money, want to stay mentally active or just like working and never plan to retire, there are pros and cons you should consider when deciding whether to work past the traditional retirement age of 65.

Money. If you delay retirement, think of it as another year you won't have to tap your nest egg and more time to rebuild a 401(k) or qualified retirement plan wrecked by the recent bear market. The extra money Terry makes pays for leisure activities, such as traveling. The couple haven't had to tap their retirement savings yet, so it continues to accrue interest for their later years. They pay their bills with their Social Security income.

Health insurance. The good thing about working is that your new employer might provide group health coverage. It can be difficult to find a part-time job in retirement that offers health benefits, so be aware that you may have to work longer hours to qualify.

Mental activity. Working during what traditionally are seen as retirement years offers people a chance to continue their mental development, learn new things and contribute to society.

Community. Many people say their workplace is like their family away from home. Working in retirement allows individuals to be around other people and feel like they are part of a community.

Social security benefits. Because Social Security benefit payments are based on your top 35 earning years, you could rack up bigger monthly checks by staying on the job longer. And thanks to changes in the law, workers age 65 or older can claim full benefits even if they continue to work full-time.

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Cons

Age discrimination. It still exists, and a 40% rise in claims from 1999 to 2002 proves it. Furthermore, 30% of respondents in the AARP study say age discrimination will be a barrier. Some employers may be biased about older Americans' ability to get up to speed if they have been out of the workforce for a while, says Deborah Russell, an AARP expert on aging workforce issues. That's why it is imperative for older people to keep their work skills up to date.

Pension problems. Returning to work after retiring could affect your pension, Russell says. Be sure to check with your former employer to make sure you won't be hit with any penalties or have any problems accessing your pension fund if you return to work, especially if you go back to your old employer. If you had chosen a lump-sum pension payment when you left your job, don't worry, your funds would not be affected.

Taxes on Social Security benefits. By working and increasing your income, there's a greater chance that a larger percentage -- up to 85% -- of your Social Security benefits will be subject to income taxes.

Less leisure time. Retirement traditionally is viewed as a time to stop working and start relaxing. If you had planned to spend time with friends and family, pursue other interests, travel or volunteer, you'll have less time to do these things if you work in retirement.

IRA withdrawals. If you have a traditional IRA and are working in retirement, you still will have to take required minimum distributions at 70. These withdrawals count as income, which could mean more of your social security benefits would be taxed. If you did not retire, and just continue working, you may be able to get around this rule.


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