Retirement is one of the most important financial decisions you can make in your life. Not only are you traditionally leaving behind a consistent income, but you’re deciding to leave a career you built for 15-25+ years.
However, times are changing and so is retirement. We are seeing a rise in both early retirements and the length of time many are spending in retirement.
A recent poll of workers 57 to 75-years old, found that the majority of respondents would rather be semi-retired than leave the workforce completely. While the main reasoning for this is financial – nearly two-thirds expressed concern about having enough savings to quit the daily work grind – many are doing this because they want to work through retirement.
When it comes to contemplating a second act, there are a few reasons why it might make sense for you. We dive into them below.
1. Keeps You Sharp and Connected to Industry Trends
Working in retirement is not just about the paycheck. It’s about staying connected to the world around you. Even though your resume likely doesn’t need any further polishing, with technology and business evolving more rapidly than ever before, it pays to continue to stay current. Research has shown that seniors who maintain strong social networks have better overall health, including better brain function.
In addition to your cognitive health, it has emotional health benefits. Working allows you to stay on top of trends, which will keep you connected and relatable to those around you, of all age groups. It also gives you an opportunity to share what you know and act as a mentor for others. Additionally, staying connected to the more significant economic trends and how things are shifting may enable you to identify opportunities from both a business and investing perspective.
2. Enables You to Grow Your Investment Portfolio
When you stop working, the way you approach your investment portfolio shifts in a big way. The transition from building your portfolio to drawing from it often leads to a more conservative allocation.
However, when you continue working, even if it’s part-time, you can often afford to be more aggressive. With income coming in the door, you may be able to dial up your portfolio allocation to growth-focused investments. In result, you could potentially create a larger nest egg, and when you decide to fully retire, you can live more comfortably and leave a larger legacy.
3. Allows You to Delay Social Security
The difference in the monthly benefit for waiting until you hit or exceed full retirement can be very significant. Early Retirement is 62 years old; Full Retirement is 66 or 67 depending on your birthdate, and Late Retirement is 70.
Your decision is whether to claim social security as soon as you are eligible or wait for a few more years to take advantage of the late retirement boost – which is a permanent 8% per year raise for every year you delay past your Full Retirement Age, up until age 70. Working longer may allow you to delay social security longer, increasing your benefits when you finally stop working.
Suppose you plan to work during retirement and take social security. In that case, one consider-ation is the tax implications of additional income. Up to 85% of your social security income may be subject to taxes, and Medicare is means-tested. If your income is over a certain level, you may be subject to the IRMAA surcharge on the Part B and Part D premium.
4. Encourages You to Find a New Direction and Your Passion
Finally, one of the best aspects of starting a second career is the concept of following your pas-sion. Too often, you hear stories about someone who was successful in their career, but always had a dream that remained unfulfilled. They may have been great at their corporate job, but they never opened that business on their own. They may have been excellent CPA, but they also had a skill for art.
Because you can pair living off some of your nest egg with supplemental income, this frees you up to find a second career that excites you every day.
So How Can You Prepare for an Encore Career?
- Assess your current financial situation – Do you need to work? How much work would be optimal?
- Reverse engineer your passions –What professions intersect the skill you want to use?
- Identify your prospects – Who do you know? What companies do you know of?
- Get your second career going – What is the first step? Build a business plan, start networking, talk to your spouse about what your new life will look like.
Getting a second career going may be the right step for you for many reasons, including your financial, physical, and emotional health. If you’re aiming to dive into a second career, consider why it may or may not be a good idea, and, in particular, how it will fit into your finances. If you would like to talk about how a second career may impact your financial plans, please schedule a call with us here.
The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.