The Blurred Lines of Retirement
Making the Decision to Retire
When you retire, do you have plans to teach part time, consult or keep a home-based business? Perhaps you want to keep your finger on the pulse of a family business or aim to turn a hobby into a money-making proposition. If so, you are not alone. About 80% of baby boomers say they will work, at least part time, in retirement, blurring the lines between work and leisure, according to recent AARP research.
Nearly 5.3 million Americans (about 13% of 55-and-older households without dependent children) are currently shifting in and out of retirement, according to SRI Consulting Business Intelligence. Some are being forced back into work because of poorly performing retirement portfolios. Others want to stay more active as they live longer and healthier lives. The weakened job market and the dwindling number of traditional pension plans also have contributed to the trend of working during retirement. (Source: CBS Marketwatch.com, October 20, 2003)
The typical retirement age is now 62. With such a long retirement horizon, those golden years will need to be well-funded.
The bottom line is that we all want an abundant and secure retirement. However, if you want it earlier than usual, you must have a well thought out plan. It still may be possible to retire early, and perhaps not work at all in your retirement years, if you plan ahead and follow some recommended steps.
Think it through. Retiring is a change of life, not just a new phase in your finances. Be sure you know what you want out of it. Do you have compelling interests outside your work that you look forward to? Do you derive a large part of your identity from your occupation? Do you “live to work” or “work to live”?
Have a plan. Know when you want to retire and how much money you need to do so based on your life expectancy, lifestyle, inflation and other factors. Remember, when withdrawing retirement funds, pulling out too much too soon may make it impossible for your money to last as long as you need it to.
Plan for short- and long-term needs. Keep money for short-term needs in stable vehicles, such as money market funds, to avoid selling more volatile investments when market values are down.* Growth investments offer a higher potential return for long-term savings but involve more short-term risk.
Know the rules. Be cautious of early withdrawal penalties and fees associated with accessing the money you have invested. There are some special circumstances where you can access 401(k) or IRA funds for early retirement needs and avoid paying the 10% tax penalty. A financial advisor can help you sort through the complicated rules of early withdrawal.
Look for product flexibility. If you will be working in retirement or are considering doing so, think about using products with more flexibility such as an annuity that comes with flexible payment options that allow you to adjust contributions each month.
Protect yourself. Don’t put all of your focus on investment strategies without considering your protection plan. Life, health and long-term care insurance needs may need adjusting in light of your changing situation.
Seek help. Retirement planning can require specialized attention if you are among the many people blurring the lines between work and leisure. A professional financial advisor can help you create or update a comprehensive financial plan, including protection planning, tax planning and structuring an appropriate portfolio for your ever-changing needs.
* An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share/unit, it is possible to lose money by investing in the Fund.