Throw Out Cookie-Cutter Notions About Work

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.”