Have you heard the Yiddish proverb: “Man plans, and God laughs”? Have some of your best laid plans gone awry? Consider these 2 conflicting headlines in the financial press that say it all when it comes to retirement planning: “Working Longer Greatly Improves Retirement Readiness” (Financial Advisor Magazine 10/4/12) vs. “Half of Retirees Leave the Workforce Earlier than Expected” (BenefitsPro.com 9/27/12).
To summarize, nearly 2/3 of Boomers have the best of intentions by planning to work during their retirement years (viz.,do additional work in their 60s and beyond - after they officially retire) BUT half of workers leave the workforce prematurely — even before their official retirement begins! It’s good that Boomers are becoming more realistic about the need to work more years, but what happens if things don’t go as planned? In other words, what happens if you plan to work to 65, then part-time thereafter – but end up without paid work before you turn 65? Consider these 2 case studies:
Susan (age 62) and Jeff (age 66) : Jeff is retired but Susan, 4 years younger, planned on working to age 66 to add to their nest egg and to qualify for a solid pension. Susan and Jeff were proactive about planning and confirmed this “best course” plan of action with their financial advisor some years ago. Last year, Susan suddenly was downsized out of work. Her generous severance package is now behind her and she hasn’t been able to find a replacement job. Jeff is retired and planned on taking social security at age 70 but this couple now worries about covering bills for the next 4 years. What should they do?
Answer: Susan and Jeff’s financial planner listens carefully to Susan and Jeff before suggesting possible modifications of their financial goals. Even if Susan eventually finds new work, they drop their goal of purchasing a 2nd home and they dial back on discretionary spending. Jeff admits he had too much time on his hands after the first several months of retirement freedom – he’s almost relieved to consider returning to work. It still makes sense for both Susan and Jeff to postpone Social Security to age 70 since Jeff’s new sales job will plug most of the cash flow gap Susan’s job provided. Susan and Jeff have their portfolio realigned to insulate them better from stock market declines. If/when Susan eventually finds work again, this will be “gravy” because they have scaled back other expenses.
Caveat: Not everyone can re-enter the work force at age 66 as easily as Jeff. Susan and Jeff sought professional advice early and are willing to trim goals and spending even further, if needed.
Elaine (age 55): Elaine is a college librarian who suddenly was widowed when husband Richard (58) died unexpectedly. Richard handled all of their financial matters. After he died, Elaine was thrown into a state of confusion and grief. Elaine and Richard never had a formal financial plan – they tentatively planned on retiring in their early 60s “if it made sense.” Elaine needs to figure out if/when she should retire, when to take Social Security, how to position her current 403b allocation and how to fund college for her 17 year old daughter, Beth. What should she do next?
Answer: Elaine realized she couldn’t rely on her friends and family to advise her regarding financial matters. Engaging a financial planner who doesn’t sell products gave her an objective overview of her new financial reality, including step-by-step guidance. With careful planning, Elaine is now on track to retire at age 63 or 64 — assuming her position remains intact. If her position is threatened or eliminated, Elaine will review things with her planner, who will run scenarios to see if Elaine needs to locate work elsewhere and/or adjust some of her retirement financial goals.
Caveat: If Elaine becomes disabled and is unable to work to age 63 or 64, her future requires even more planning. Her planner has calculated long-term disability payments nonetheless would leave her short of cash. If that occurs, Elaine may need to consider downsizing her home or other options to avoid outliving her assets.
We’re reminded daily that we inhabit a fluid, unpredictable world. Boomer intentions to work into retirement represent a more realistic assessment of retirement overall, but good intentions can be overturned by individual circumstances (e.g. health, caregiver responsibilities, etc. ) or things beyond your control (your job disappears). Do you need to reconsider the validity of your financial assumptions? If you’re married, have you discussed your retirement assumptions with your spouse? Professional advice may become even more important to avoid the risk of outliving assets.