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Retirement Income: Plan Your Second Career

Dorothy Atkins, of San Jose, Calif., may be the prototypical example of today's retiree. She's active, healthy ... and working. In 2002, when Bank of America told Atkins, now 68, that it was relocating her division, the project manager walked out the door and bid farewell to her banking career. But her working days didn't end there. "I was retired for about a second," she says. Atkins used BofA's severance to start her second act by converting a spare bedroom into an art studio and creating a line of greeting cards she sells to stores and museums. The income has kept her from dipping into her retirement savings and let her live the life she wants. "I encourage my friends to find something they love so much that they'd do it for free," Atkins says.

Employment for people 65 and older has doubled over the past 30 years and is expected to double again over the next decade, according to the Bureau of Labor Statistics. While part-time is work is most common, there's been a recent rise in retirees working more than 35 hours a week.

To make your second act a success, as Atkins has, follow these six steps:

1. Find Your Passion

As a bank executive, Atkins spent 20 years riding an hour to work by train each day dreaming of a more fulfilling life and doodling. “I always had a dream pad, where I’d write down how I saw myself and what I wanted to do,” she says. “I was a banker. But I saw myself as an artist, who needed to be in a studio creating something.”

2. Turn It into Cash

Jim Collinson’s passion is geology — he taught it at colleges for 30 years. But Collinson tired of grading papers and attending staff meetings. Chatting with other instructors at Ohio State led him to discover a new career: lecturing about Antarctica’s geology on cruise ships headed to the southernmost continent. The cruise companies cover his expenses to visit an area he loves, pay up to $150 a day, and provide generous family discounts. “The work paid for a decent laptop,” says Collinson, 71. “And my income has stayed pretty much the same as it was when I was teaching.”

You may need to get creative, as Collinson did, to turn your passion into profit. If you have a hobby, read magazines dedicated to the subject and join its trade group to find ways of earning money from the avocation in retirement.

To learn how to start a business, as Atkins did, connect with the National Federation of Independent Business, the leading trade group for small businesses. The NFIB’s web site has articles on everything from how to start a business in a bad economy to questions you should ask when considering a franchise. If you join NFIB ($180 annual dues), the group can put you in touch with business owners already doing what you want to do.

The Service Corps of Retired Executives (SCORE), a partner of the Small Business Administration, can also be a useful resource. This nonprofit provides free one-on-one and online counseling, offering advice on everything from creating a business plan to finding sources of financing.

3. Do the Math

Knowing that a retirement business has profit potential isn’t enough. You need to figure out whether its earnings, along with your other sources of retirement income, will cover your expenses.

So pencil out a budget, says Stacy Hammond, director of Real Life Retirement Services (yes, that’s the division’s name) at Charles Schwab in San Francisco. Separate expenses into two groups: mandatory ones such as housing, car payments, and utilities, and then discretionary expenses, such as dining out and movies. This lets you identify future expenses you can cut, if necessary, to do the work you love in retirement.

This was a key step for Atkins, who not surprisingly earns far less making greeting cards than she did as a banker. By scrutinizing her budget, she realized she could cover most fixed expenses from pensions and Social Security. The art income just needed to cover the discretionary expenses. Now that she’s enjoying the thrill of creating art, Atkins has cut back on the frills of life. “I used to want a big house at the beach because the ocean made me feel tranquil,” she says. “Now, if I want a day at the beach, I go there.”

4. Prepare for Life After Retirement Work

Although your second act will throw off income for a while, remember to factor in the years in late retirement when you may not be physically able to do the job. “You can’t work forever,” says Hammond. Hammond suggests thinking of your retirement in time blocks. Make plans for the first 10 years, the next 10 years, and so on. Working during the first block or two should help keep you from needing to withdraw some money you’ve saved. Then, when paid work isn’t an option, you’ll be in a better position to tap your savings.

5. Test the Waters

While you’re working full time in your 50s or early 60s, try to freelance doing what you’ll want to do to earn money in retirement. MoneyWatch blogger Robert Pagliarini calls this using “your other eight hours.”

Real-life experience will help you decide if you’ll enjoy the work, says Cecily Maton, partner at the Chicago financial planning firm of Aequus Wealth Management. Maton says testing the waters leads about half her clients to make 180-degree turns because they find they’re not as fond of their targeted field as they expected.

6. Market Yourself

When planning a career change for retirement, you’ve got to let people know who you are and what you do.

Collinson drew up an autobiography and translated it into Spanish and German, since many cruise ships he wanted to work for had foreign clientele. He could then e-mail his credentials to anyone who might be able to add him to the floating lecture circuit.

Atkins hit the streets. “I went to all the art stores where I used to shop and carried my new business cards to show them what I was doing,” she says. “It was a tough way to start, but then you start getting business from word-of-mouth.”

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