A guide to the working retirement

(MoneyWatch) Work during your retirement? That might sound like an oxymoron, but it really depends on how you define "retirement." It's indeed an oxymoron if you adhere to the traditional definition of retirement as "not working," but it may not be if you define retirement as being happy, fulfilled, and financially secure. And if you believe retirement to be "doing more of what you want to do and less of what you don't want to do," then working doesn't need to be inconsistent with retirement.

During my retirement planning workshops, I show participants how retirement planning can quickly morph into career planning and life planning. The reasons? When most people realistically assess the income they'll receive from their financial resources, such as Social Security and their retirement savings, they realize they won't be able to generate a lifetime income that covers all the living expenses they had to pay for while they were working. As a result, in order to make ends meet in your retirement years, you'll either need to keep working longer, reduce your living expenses to match your income, or develop some combination of these two strategies.

Welcome to Week 6 of my 16-week series on planning your retirement. While future posts in this series will help you assess your financial resources, this week we'll explore how you might work and earn income in your retirement years. I'm introducing this topic early in the series because it might take you some time to reflect on and explore your options, and to get used to the idea that you might need to work in your retirement years.

If you're like most people, you'll end up deciding to continue working for many more years than you had originally planned, either because you need the money or you enjoy working. Much of retirement planning involves making choices in a series of tradeoffs; one significant tradeoff is how much spending power you're willing to give up in exchange for your freedom from work.

The goal is to provide the information you need to make conscious choices about working that enable you to enjoy your retirement years. It's important to think about why you'll want to work in your retirement years, so take a look at this list of questions to see which factors apply to you:

  • How much income will you need from work? This will depend largely on your spending habits and how much income you'll receive from your financial resources.
  • When is the best time to start your Social Security benefits? For many people, delaying the start of Social Security is a smart strategy, and you may decide to work just enough to replace the Social Security benefits that you're delaying.
  • When is the best time to tap into your retirement savings? Once again, for many people, waiting to tap into these resources so they can grow is a good strategy, so you may want to work just enough to cover most or all of your living expenses until you begin drawing down your retirement savings.
  • Do you need health insurance from an employer? This question is often critical if you want to retire before age 65, the eligibility age for Medicare.
  • Can you work and still have more time to pursue your interests? You may be able to work part time to cover your living expenses and have more time to pursue your interests. In fact, "practice retirement" is one popular strategy to consider; to accomplish this, you work just enough to cover your living expenses, purposefully enjoy life more, and delay tapping into your financial resources to let them grow as long as possible.
  • Do you get fulfillment from work? Many people like being productive and useful to society, and they enjoy the social interaction at work.

You'll learn more about the first four factors in the weeks to come, so you may want to circle back to this week's post after you've had a chance to assess the income you might receive from such financial resources as Social Security and your retirement savings.

Whatever your reasons for working in your retirement years, you'll want to find work that pays a reasonable amount and is also enjoyable to you. Some of you might find that starting your own business is the best way to achieve your goals. Stay tuned for posts this week that further explore the idea of working during your retirement years.

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.

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