There is a common saying that time heals almost everything. Yet, even as we embark on the fifth year since the pandemic began, most of
Retirement: Are You Overlooking a Potentially Powerful Asset?
Published Date : July 24, 2014
Most of us imagine our transition to retirement will be filled with both excitement and relief; however many find the transition to have an unexpected emotional impact. As a way to manage the transition, a growing number of professionals are making a calculated “downshift” into a flexible state of semi-retirement that has both personal and financial benefits. By capitalizing on their accumulated knowledge and experience, new retirees reap the two-fold reward of retaining their ability to contribute, while bolstering and extending the longevity of their retirement portfolio by tapping their earning potential first. This is especially true for those with expertise in professional fields. Today, close to 80% of Americans are working in service industries,* which are less susceptible to productivity declines from aging. Many of those industries need and want access to the knowledge and experience that consultants and part-time professionals can offer. With an increase in life expectancy, this “downshift” appoach has financial and personal benefits that may become the model for future retirees.
In terms of financial sustainability, unless you have a healthy retirement portfolio or pension providing a reliable income, you will need to accumulate, at a minimum based on long-term historical trends, an asset base equivalent to 20 times your annual spending rate if you intend to maintain your lifestyle through retirement. As financial advisors who help our clients navigate such major life transitions, we are noticing, with an increased frequency, that a number of them are turning to an overlooked asset – their own knowledge and experience – to pad their balance sheet. Whether you are just getting started (or restarted!) or closer to retirement, each of us has a “millionaire inside” who has the ability to earn a wage, our greatest asset, and one that has benefits beyond remuneration.
If your retirement horizon is 10 to 15 years away, the thought of delaying full retirement may not seem worth the aggravation. But while part time income will likely only be a fraction of your current income, the benefits extend beyond just a little extra spending money. Delaying the need to completely rely on your investment portfolio also affords you the ability to delay the transition of your portfolio allocation from capital appreciation to capital preservation. The assets that would have been liquidated and consumed over the semi-retirement period will have the opportunity to grow and compound, building a buffer to guard against the unknowns of your investment portfolio, such as market volatility, higher inflation and taxes. The additional earned income could also allow you to delay Social Security retirement benefits to age 70, giving you, under current law, an automatic 8% per year annual increase for each year delayed past your full retirement age (32% total increase from age 66 to age 70). For those who may not have worked enough to accumulate the credits necessary to qualify for full retirement benefits, extending your earning years will help you qualify or draw closer to the full Social Security income payout.
The gradual shift from full employment to full retirement, in addition to providing a larger financial cushion, can also serve to ease the emotional transition to retirement while offering an enjoyable social outlet. Given the increase in life expectancy and challenge of building adequate savings, future generations will be wise to follow the lead of these income earning retirement pioneers and utilize their accumulated human capital assets before spending from their portfolios.
* www.bls.gov/emp/ep_table_201.htm, United States Department of Labor, Bureau of Labor Statistics, “Employment by Major Industry Sector”
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