Easing into retirement

For most of your working life, you’ve looked forward to the day when you can quit your job and start enjoying retirement. But in recent years, talk of longer life expectancies, uncertain Social Security benefits, declining pension benefits, unknown inflation rates, and low retirement savings made retiring at a relatively young age seem difficult. Then, in the past couple of years, declining investment and home values made it seem even more difficult to retire at any age.

More and more people are coming to the conclusion that either retiring later or continuing to work during retirement is necessary. Working doesn’t necessarily mean that you have to stay with your current employer. Rather, many individuals are taking on totally different jobs, which can allow them to try something new, provide more free time by working less, or ensure less stress.

Besides the nonfinancial reasons for working, there are several financial reasons:

• You have more time to save. Each additional year you work is an additional year you can continue to save for retirement.
• You shorten your retirement period. The longer you work, the less time you’ll spend in retirement, which means you need less money to fund that retirement.
• You can delay Social Security benefits. Each additional year you wait to take Social Security benefits, up to age 70, will permanently increase your monthly benefit.
• You keep health insurance benefits. One of the most significant costs in retirement is health care, and you can delay those costs by working at a job that provides this benefit. Some companies are helping employees with retirement issues by allowing phased retirement, where hours are gradually reduced until full retirement. One possible advantage of staying with your current employer is that the pay may be higher than if you started over in another profession.

• How will phased retirement affect your benefits? Many pension benefits are calculated based on your earnings in the last few years of your working career. If you don’t want to take pension benefits yet, make sure your pension will be calculated using earnings while you worked fulltime.
• What will happen to your salary with reduced hours? Will you receive a pro-rata share of your pay, or will a different pay scale be used? Will you be entitled to pay increases in the future?
• Will you be eligible for health insurance benefits? Find out the company’s policy regarding health insurance benefits for part-time workers. This will be especially important if you move to part-time status before age 65, since you won’t be eligible for Medicare.

Make sure there is a mutual understanding about your hours. Can you take time off to travel? If you don’t like part-time work, can you go back to your full-time job? If your employer doesn’t offer a phased retirement program or you want to try something new, investigate your options before quitting your job.

Previous generations were able to retire easier due to the generosity of company pension benefits and Social Security. But longer life expectancies, less generous benefits, and declining asset values mean that it is time to redefine retirement. What many are seeking is not so much total leisure as more leisure or a more meaningful lifestyle. Many are finding that those goals can be accomplished while still working, with those additional working years providing more financial security.

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