The Unretiring Trend — How To Avoid This Happening to You
A combination of factors, from higher-than-expected costs in retirement, to the increased age to take full Social Security Benefits, to a lack of proper financial planning, has led to a lot of retirees struggling.
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In fact, these difficulties are forcing some to “unretire” — essentially go back to work after they’ve already left their jobs or stepped away from a business.
According to a survey by ResumeBuilder, as many as one in eight retired people in the 62 to 85 age range said they will have to go back to work this year for financial reasons. This is different from people who choose to go back to work because they want to feel connected or purposeful.
GOBankingRates spoke with financial experts on how to avoid this unretiring fate for yourself.
Don’t Guess
When it comes to your finances, “[N]o one should rely on guesses, assumptions, generic benchmarks or any advice that presents broad generalizations as specific goals,” said Drew Parker, creator of The Complete Retirement Planner.
Yet that’s what approximately 80% of households are doing, he continued, and it’s causing them to underestimate how much they’ll have to save.
“Everyone’s financial situation, wants and needs are unique, so an individualized approach to retirement planning is needed,” added Parker.
Keisha Blair, founder of the Institute on Holistic Wealth and host of the Holistic Wealth podcast, explained that unretirement often occurs “when retirees underestimate their financial needs in retirement or encounter unexpected expenses. This can lead to a cycle of returning to work, which can be emotionally and financially challenging.”
Know Your Numbers
If you want to avoid the possibility of unretiring, Christopher Stroup, a certified financial planner (CFP) with Abacus Wealth Partners, suggests it’s pretty simple.
He said, “It goes back to knowing your numbers. Is the number that you need going to match up with what you’re going to have at that time once you make the pivot from working to not working in retirement?”
This requires “just stepping on the scale financially” Stroup said, and carefully assessing your expected expenses in retirement.
“And then, periodically reviewing that especially as you get closer to making that jump from your working career to retirement, really focusing on what that’s going to look like.”
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Don’t Retire Too Early
According to Stroup, part of the problem for those who unretire is not planning properly and/or not understanding the ramifications of certain financial decisions.
“Case in point, you can start collecting Social Security as early as 62,” Stroup explained. “Some people decide to collect right away, but what they don’t realize is that for every year you defer your social security, you get a 7% to 8% bump in your benefit if you were to wait.”
Avoid Loss Aversion
Blair said that some retirees may be reluctant to dip into their retirement savings for fear of losing their financial security. She calls this, “loss aversion,” and adds that it “can lead to unretirement as [retirees] seek additional income sources.”
While taking from your retirement fund can be a big decision, Blair said that if you maintain a diverse income portfolio, you should be able to find financial stability and reduce the need to unretire for additional income.
Additionally, she advised, “Periodically review your retirement plan to ensure it aligns with your current financial situation and adjust as needed to avoid the need to unretire.”
Don’t Prioritize Immediate Needs Over Long Term Needs
People tend to prioritize immediate rewards over long-term benefits, Blair warned.
“Retirees may underestimate future financial needs, leading to unretirement when faced with unexpected expenses.”
Get Professional Advice
Stroup also pointed out that part of the problem is just not knowing what you don’t know. A lack of understanding can lead to you making financial mistakes or taking benefits too soon, costing yourself in the long run.
“That’s where maybe working with someone else or just having a group or an advisor can be really beneficial to help you understand some of the key decisions that maybe you’re not thinking about,” he continued.
Do Some Basic Math
Retirement calculations can seem overwhelming, but Stroup has a simple formula: “Divide the annual income that you want to have by 0.04 or 4%. That’s a rough number when we think about that 4% withdrawal rate from your assets.”
He went on to explain, “[If] you take $100,000 per year divided by 4%, that number is an approximate target asset number that you can aim to set up across your buckets, whether that’s taxable accounts, retirement accounts, cash savings, etc.”
Actual numbers will vary for every individual. Stroup said, “It depends on how aggressively you are invested across those buckets and what your actual spend rate is, but that can be sort of an initial calculation to get you going in the right direction.”
Consider Waiting To Retire
If you’re not 100% sure you’ve got as much as you need for retirement, Stroup said it can be beneficial to put off retirement for a little while longer.
“You likely go from saving into your assets to drawing on those assets in retirement, so you flip from the accumulation phase to the distribution phase of your life,” he said. “The longer you can defer that relationship, [therefore] the longer you can accumulate, the better your distribution phase of your life will be in the sense of being able to draw higher amounts on those assets for longer.”
Even deferring retirement by one or two years can allow your assets to grow significantly, according to Stroup.
Consider Other Income Streams
Beyond just your own invested retirement assets, Stroup suggests considering other income streams.
“If you’re lucky enough to have a pension, that’s great. You have Social Security. Do you have rental income coming in during your lifetime? You could be building a small portfolio of rental properties, right? And that could just give you income in retirement.”
Ultimately, Stroup said, “There’s no one size fits all. It’s going to take a layered approach to ultimately fund a current retiree’s lifestyle.”
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This article originally appeared on GOBankingRates.com: The Unretiring Trend — How To Avoid This Happening to You
