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Boost Your Income on the Verge of Retirement

Before the recession stormed in last fall, Dan and Barbara Hoffa could see nothing but smooth sailing ahead. But now Dan, 65, who had been earning about $125,000 a year selling IT consulting services, is unemployed. Barbara's income was cut by more than half, and the couple's comfortable $2 million nest egg, which they'd spent decades accumulating, was crushed to half its peak size. To make matters worse, as an independent contractor, Dan's not eligible for unemployment benefits, and the Hoffas are withdrawing $36,000 a year from savings to make ends meet.

Dan plans to file for Social Security in August 2010, when he turns 66 and is entitled to his full benefit. Selling their large house and downsizing would, he believes, lower the couple’s housing expenses by at least 25 percent. But in Portland, where home sales continue to slump, the Hoffas may not be able to sell for a year or two. “I need an income stream that will keep my head above water,” says Dan. “I’m not married to the computer industry, but at my age, it might be difficult to convince someone that I can sell health care solutions or widgets.”

We asked Certified Financial Planner Marilyn Bergen, co-president of CMC Advisers in Portland, to help the Hoffas with their predicament. Bergen has more than 20 years’ experience in personal finance and investing.

Take Social Security Now

Dan’s expected benefit of $2,200 at his full retirement age of 66 would be reduced by only 5.6 percent, to about $2,075, if he files for Social Security this year; he turned 65 in August. Collecting now would give the Hoffas $24,900 a year, closing their income gap. Bergen recommends he take the lesser amount. “It helps buy them time for Dan to get another consulting engagement or regular job, and while the Hoffas wait for the housing market to recover,” says Bergen. If Dan does find work while collecting Social Security, benefit amounts are adjusted depending on his age and the amount he is earning, according to Social Security rules.

Rent Out a Room

Bergen notes that Portland is a big university town; taking a student boarder into their 5,000-square-foot home could help with expenses. “I suppose that Dan and his wife might not really want to do this,” she acknowledges, “but you either have to increase your income or decrease your expenses.”A renter in a private house in the Portland area might be expected to pay about $750 a month, according to, a nationwide off-campus housing service. That would add another $9,000 a year pre-tax, giving the Hoffas a surplus they can save or spend.

Tap Savings — a Little

Withdrawing funds at a rate of about 4 percent a year generally keeps retirement savings from dwindling too rapidly. The Hoffas have about $900,000 left after the market’s fall. So they could safely take out $36,000 a year, says Bergen. While the standard approach is to withdraw 4 percent the first year, and then increase withdrawals by the amount of inflation, Bergen recommends a more conservative approach. She suggests that the Hoffas adjust for market changes every year. If they withdraw $36,000, and the portfolio grows back to $900,000 by the next year, they can take another $36,000. But if, for example, the value stays flat at $864,000, then the next year they can only take 4 percent of $864,000, or $34,560.

Keep Searching for a Job

Older workers who have had successful careers in no-longer-robust areas such as IT sales face a dilemma: Stick to your core skill and try switching to a new industry with more plentiful opportunities, or learn a new skill altogether. In Dan’s case, that means finding another job in sales or acquiring new technical skills, such as programming.

Whether such training makes sense depends on several factors, including how long you’ll be able to use it; costly training clearly doesn’t make sense if you expect to work only a short while before retiring. But even with additional training, older workers face some deep-rooted prejudices, says Peter Cappelli, director of the Center for Human Resources at The Wharton School.

“The bigger challenge concerns whether employers would be willing to hire older workers who have retrained for new careers, and this relates to age discrimination,” he says. “Older workers on virtually every dimension perform better than their younger counterparts, especially recent graduates. But for lots of bad reasons, employers are reluctant to hire older workers. They may think these workers won’t be there long, forgetting that younger workers turn over like crazy; they may think older workers are harder to manage, which appears not to be the case at all.”

For Dan, Cappelli says, going into another sales job would seem the simpler course: “It will probably be easier to find another job exactly like the one you’ve had before, even if it’s only part-time or the pay is lousy, compared to trying to find one where your skills aren’t a good match.” One small bright spot for older job hunters: for employers who offer health insurance, workers already on Medicare may actually have an edge, and Dan now qualifies.

Dan’s Response

“We still figure we can hold out until I am 66 to take Social Security unless something unexpected comes along, like a medical issue,” says Dan. His more than 75 resumes have yielded few interviews so far. He recently took a commission-only position, but felt as if the company wasn’t standing behind his sales efforts, so now he’s taken his job hunt farther afield, to Seattle. “I’ve tried hard to get a job in health care sales, an area with a lot of cross-pollination with technology,” he says. “But every position I’ve looked at requires prior health care experience.”

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