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Retirement Planning > Retirement Investing

Throw Out Cookie-Cutter Notions About Work

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Boomers take note. The cookie-cutter view of retirement is itself being retired, say financial services experts.

Panels, surveys and executive predictions, which include The Hartford, Merrill Lynch and ING Reinsurance to name just a few, say that boomers’ retirement will be flexible and, for many, will include work in the mix of options that will be drawn upon.

A U.S. Census Bureau study, “65+ in the United States: 2005,” seems to support these predictions. It found that labor force participation rates between 1980 and 2003 grew for men and women in both the 65 to 69 and the 70 to 74 age groups.

The census report says there will be more of a transition to retirement bridged by part-time employment and nontraditional work. “Bridge jobs are becoming a more frequent part of the retirement process. Late-life work patterns take many forms, from a reduction in working hours to self-employment to reverse retirement.”

The reasons for returning to work vary from the practical to the recreational.

The report’s findings are echoed by a growing number of financial services professionals.

Mike Emerson, CEO of ING Re, Minneapolis, notes a combination of events including a shortage of skilled workers and the strain placed on traditional safety nets such as Social Security that will encourage boomers in the future to work beyond what have traditionally been retirement years.

Reinsurers, he says, will be called on to help develop employee benefits that meet the need for more flexibility. That flexibility will include more cyclical work that leaves time for leisure, he adds.

“Do you want fries with that?” is not going to be a phrase that a highly educated boomer work force will utter as it explores work beyond retirement, says Maureen Mohyde, director of corporate gerontology with The Hartford.

The reasons are varied but include better health, a younger attitude and a labor shortage, she says. She cites a recent survey of 65- to 75-year-olds taken by the National Council on Aging that found roughly half of respondents thought of themselves as middle-aged or young.

And, in spite of the globalization of the work force, Mohyde says that starting about 2010, there will be a labor shortage.

The “2005 Annual Labor Day Report” conducted by the National Association of Manufacturers, Washington, supports the notion of a skilled labor shortage. It reported, for instance, that between 2002 and 2012, there will be two million job openings in computer science, math, engineering and the physical sciences.

In addition to the satisfaction Mohyde says boomers can experience by exploring different work possibilities, she echoes what other financial services professionals interviewed by National Underwriter say: It can make a huge difference in stretching a retirement income portfolio.

The math tells the story, says Michael Kresh, a certified financial planner with M.D. Kresh Financial Services, Islandia, N.Y.

Kresh compares the effect on a retirement portfolio to the way a mortgage works. He says there is a crossover point in a mortgage, usually around year 23 for a 30-year fixed mortgage, in which the payment of principal accelerates rapidly. There is also a crossover point for retirement portfolios, in which withdrawals can cause a decline in the size of the portfolio to accelerate rapidly, Kresh explains.

There are three ways to reverse or slow this decline in the portfolio size, he says: save more, spend less in retirement or work longer. For those who are near retirement, he continues, deferring retirement is usually the easiest approach with the greatest potential impact. Deferring withdrawal from a retirement portfolio for two to four years can add eight to 10 years to the portfolio’s life, he says.

When clients say they might not live to their actuarial life expectancy, he counters by suggesting more flexible work hours that balance recreation with work.

It relieves pressure on the portfolio, according to John Diehl, a vice president and certified financial planner with The Hartford. If the rule of thumb is an annual 4% withdrawal annually from a portfolio, working in retirement could reduce that to 3%, for example.

A present value calculation can quantify what will be needed if things go as planned, but part-time employment can buffer a client against the unexpected, Diehl adds. It also can make things such as long term care insurance available, he says.

He says that for the boomer who works into retirement, it is akin to getting two paychecks: one from the retirement portfolio and one from the second source of employment.

Buz Livingston, a certified financial planner in Santa Rosa Beach, Fla., concurs, noting that even working part time can be helpful particularly for boomers who have not saved enough for retirement. While it is possible that income from part-time employment could be saved and used to add to a portfolio, the more likely scenario is that it will be used to pay current expenses because not enough has been saved.

In addition to the financial boost, Livingston notes, “it also gives workers interaction and a place to go.”


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