This article appears in Winter Boomers magazine.
The trend of people working past retirement age continues to increase, but age-friendly employers are helping workers financially prepare by offering flexible phased retirement programs.
The Bureau of Labor Statistics estimates that about 25% of Americans of retirement age choose to keep working. Adults 65 and older are twice as likely to be working today compared with 1985, according to a report from United Income, a financial planning and investment management company.
Older Americans tend to make more than their younger counterparts, but needing the money is not the only reason people work past retirement age, said Abby Eisenkraft, CEO of Choice Tax Solutions in New York City.
“Many people have raided their retirement accounts to put children in school or used it like a piggy bank, and they realize they haven’t saved sufficiently — or they have nothing at all,” she said. “The statistics for Americans who have not saved are frightening for most people. If they stopped working, they couldn’t pay their bills, afford insurance, pay a mortgage they still might have, etc. And those who leave school with staggering student loans carry them decades later.
“For many people, a job is an identity. Many people feel lost when they lose their job, either by being forced out via termination or retirement. They lose the feeling of importance, the feeling of being needed, the feeling of being part of a group. Suddenly they have no place to go. It can be very dangerous for mental and physical health,” Eisenkraft said.
The social aspect of working is also a benefit.
“They see the same people day after day, and the interaction is important and enjoyable. They become a family,” she said.
Flexible retirement is appealing to workers, but only 18% of employers have a formal phased retirement program, according to a new research report by the nonprofit Transamerica Center for Retirement Studies.
“Flexible or phased retirement would be keeping your current position but cutting back on hours/days of work, or phasing out from a full time employee to a consultant,” Eisenkraft said. “You are still involved with the job, but not at the same pace.”
Phased retirement is good for companies, too.
“Having former full time employees reduce their hours or become consultants helps a company’s headcount without losing the valuable skills of those employees,” she said.
Is phased retirement right for you?
“Phased retirement is perfect for the person who needs to cut back but not totally leave the job,” Eisenkraft said. “Being self-employed is great, but there are a lot of skills required for this. You need to get your own business and medical insurance, handle your own bookkeeping/accounting for your taxes and pay estimated taxes. Your former employer did a lot of this for you, and now that you are a consultant and off the payroll, it falls to you. You need to be prepared.”
Phased retirement can affect your Social Security and your tax bracket. Consult a tax professional with experience in this area to see how your income affects your Social Security and when is the best time to start drawing payments.
“Of course, putting off drawing Social Security gives many people a higher benefit up to a particular age, but it might not be possible to wait. Crunch the numbers with someone else and get a reality check,” Eisenkraft said.