In short, advisors may want to review the basics with their clients who had been planning on working in retirement. They may also want to block out more than their usual time with a particular client so that they can problem solve the passion, purpose, or profit problem of clients no longer feeling safe working in their retirement age.
Not everyone wants to retire. For some folks, retirement may mean ocean cruises and golf. For others, retirement means consulting instead of working a 40+ hour week. Or it may mean finally opening that catering business after a life time of teaching. Not everyone chooses a working retirement because they want to, some choose to supplement their retirement income because of unexpected life events, needs of their families or health concerns. Whatever the motivation, many older investors may have been planning on a working retirement. Those older investors probably didn’t plan on a contagious pandemic that put them in a high risk category. Advisors may need to have some hard conversations with their clients about retirement planning. We’ve written before about working retirements. Here are a few things from those past articles to keep in mind when preparing for those tough conversations with clients who are now or planned to be working in retirement.
The issue is as big as you think it is.
Recent studies have shown that almost half of all retirees either have worked or plan to work part time in their retirement. As we’ve discussed before, according to the PEW Research center, nearly 9 million people in the workforce in 2016 were 65 or older. That amounts to almost 20% of that population and is up since 2000. And some are only partially retired; many continue to work part-time. In fact, the average age of retirement is trending up.
Passion, Purpose or Profit?
You may want to start by reviewing what it was they were seeking in delaying retirement. As we discussed, for many folks, their retirement job was their passion plan. A love of cooking during a life of teaching might have turned into a sweet cookie catering business. The income from the passion business wasn’t essential. Those clients may be able to continue their hobby from a socially distant space. Others may have trouble walking away from what they felt was their calling. Nursing for many is an approach to life, not a job. Writers will always write whether they have paper to catch their words or not. For those who sought passion or purpose in their retirement career a savvy advisor can connect those clients to community resources.
Some clients may have chosen to delay retirement as part of a careful tax or estate plan. For those who are 70 or older, still working and don’t own more than 5% of the company they work for, they can delay a required minimum disbursement from a 401(k) until you retire. If they suddenly need to retire because returning to work puts their health at risk, that RMD could move them into a different tax bracket. Those clients may need careful tax planning, and may need that tax advice quickly. An advisor might want to prepare for that difficult client meeting by having a list of tax advisors they recommend printed out, and ready to hand to the client.
Others may have needed the profit that a working retirement provided. Some clients may have chosen to work while they receive social security benefits (including survivor benefits). As we’ve previously written, work during retirement age could result in a higher benefit later on, if the earnings for the prior year were higher than the years the SSA used to compute retirement benefits. For those who are less than the full retirement age, a deduction in payments could occur. For those who have reached SSA’s full retirement age (between 65 and 67), a deduction is made for earnings above $46,920 (for 2019). And for those beyond retirement age (e.g., over 68), no deduction is made on earnings. This is true for those who retire, claim SSA benefits, and then must return to work. However, clients who work during retirement age may have been incurring additional costs for Medicare Parts B and D, if they earned more than $85,000 individually.
Advisors may want to consider reviewing budgeting and savings plans with those clients who were working in retirement to make up for unexpected costs incurred during retirement. Having budgeting and savings information and brochures availablefor the tough conversation may help clients through this difficult period.
In short, advisors may want to review the basics with their clients who had been planning on working in retirement. They may also want to block out more than their usual time with a particular client so that they can problem solve the passion, purpose, profit problem of clients no longer feeling safe working in their retirement age.
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
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