If you’re heading into retirement, the last thing you want to worry about is how you’ll continue to make money. Generating income without working can be complicated for older adults, but it’s not impossible. It’s essential to understand your options and be aware of potential scams. Unfortunately, older adults are the main target of financial scams.
Still, you can maintain smart spending in retirement and maximize your finances safely and successfully with the proper planning and strategies.
MoneyGeek.com published an extensive article that discusses the following:
- Creating a Steady Income
- Managing Income Streams
- Avoiding Common Mistakes
- Staying Safe from Money Scams
They tapped into Senior Wealth Advisor, Howard Hook, for his expert insights. Here’s what he had to say…
If an older adult was not able to save heavily before retirement, what’s the first tip you recommend for earning income in retirement?
If you want to make up for not saving enough for retirement and wish to do so by working, the first tip would be to determine how much of a shortfall you wish to make up. This is a complicated calculation since you need to know how much money you need from your investment portfolio and then project how long the portfolio will last if you withdraw each year.
Rather than overcomplicating it at first, try to see how many shortfalls you need so that no withdrawals are needed. For example, if you expect to spend $5,000 per month in retirement and your social security income is $2,500 per month, your shortfall is $2,500 ($5,000 minus $2,500). Annually, the amount is $30,000.
Before looking for a job for $30,000, you need to understand that you will owe taxes on the $30,000—income taxes (Federal and State) and FICA taxes. So, you might need to find a job paying $40,000 a year to net down to the $30,000 you need after taxes. Even if you cannot find a job for the full amount you need, it still helps by reducing the number of withdrawals from your portfolio, which will benefit you in the long run.
Earning an income once retired has other benefits as well. Doing so can help ease you into retirement. For many people, it is a tough adjustment to work their entire lives and then have nothing to do on day one of retirement. Phasing into retirement by working a bit can help you emotionally adjust to retirement.
Another thing to consider is that a full retirement can last upwards of thirty years and that retirement over thirty years will look different. The first ten years may be more active than the next ten, and the last 10-15 years may see less traveling and potentially more need for care. Working at the beginning of retirement may help when, later in retirement, you may not be able to work.
How do you recommend an older adult calculate their life expectancy when financially planning for retirement?
When planning for retirement, it is critical to calculate your life expectancy to determine how much money you can withdraw without worrying about running out of funds. Using too short a life expectancy could mean running out of money too soon if you outlive the number you use. Using a life expectancy that’s too long could result in a lost opportunity —spending too little in anticipation of living a long life.
So, what to do? We use age 90 for clients. We will then adjust the number if their family tends to have longevity. We could adjust the number down, too, if there appear to be genetic reasons to do so. However, we are careful when doing so because illnesses that parents or grandparents may have died from years ago may be curable today or not likely to substantially reduce someone’s life expectancy today.
