The concept of “unretirement” is gaining momentum as an increasing number of retirees are choosing to reenter the workforce. In this blog post, we’ll explore the reasons behind this trend, delve into both financial and nonfinancial factors contributing to unretirement, and highlight a common mistake retirees make when planning their retirement. We’ll also provide practical tips on how retirees can achieve fulfillment and purpose during their post-career years.
The Financial Motivation for Unretirement
Recent statistics reveal a surprising trend in retirement. According to T. Rowe Price, approximately 20% of retirees are currently working full-time or part-time jobs. Even more intriguing, a study from Paychex found that one in six retired individuals is contemplating returning to work, and the primary motivator for this group is financial need. Nearly 50% of those considering reemployment cited the necessity for additional income as their primary driver.
The Nonfinancial Aspects of Unretirement
While financial concerns play a significant role in the decision to unretire, there is another critical dimension to this phenomenon: the nonfinancial aspects. Many financially stable retirees, who do not necessarily need extra income, are still opting to return to work. Their motivations revolve around the emotional and social benefits of work.
A remarkable 45% of respondents in a survey mentioned that they return to work to fulfill social and emotional needs that retirement doesn’t satisfy. Loneliness, a lack of purpose, and a diminished sense of community are common challenges retirees face. These issues align with the three Cs of retirement fulfillment: connection, contribution, and creativity.
Fulfilling the Three Cs in Retirement
To combat the challenges of unretirement, retirees can focus on the three Cs:
Contribution: Retirees can donate their time and skills to causes or charities they are passionate about. Using their unique abilities to assist organizations can be incredibly fulfilling. Identifying your strengths is essential, and tools like StrengthsFinder can help pinpoint your skills.
Connection: Maintaining strong social relationships after retirement is crucial. Retirees should make a concerted effort to stay connected with friends and colleagues. Additionally, exploring hobbies and interests can lead to new social connections.
Creativity: Engaging in creative pursuits can provide a sense of purpose. Whether it’s pursuing a long-lost hobby, starting a new artistic endeavor, or exploring a passion, creativity can bring joy and fulfillment to retirement.
The Big Retirement Mistake: Starting Social Security Early
One common mistake retirees make is rushing to start Social Security benefits immediately upon retirement. This decision can backfire when retirees experience unretirement. If retirees exceed an earnings limit (around $21,000 per year), they may have to repay Social Security benefits at a rate of $1 for every $2 they earn.
To avoid this pitfall, retirees should consider waiting a few months before starting Social Security. During this time, they can rely on other savings and investments to cover their expenses while they gauge their interest in returning to work. This approach allows retirees to test the waters of retirement and ensures they don’t inadvertently incur financial penalties.
TL;DR
The rise of unretirement is a multifaceted phenomenon driven by both financial necessity and nonfinancial factors. As retirees consider returning to work, it’s crucial to balance their financial needs with the emotional and social aspects of retirement. By focusing on the three Cs—connection, contribution, and creativity—retirees can find fulfillment and purpose in their post-career years. Additionally, avoiding the common mistake of starting Social Security too early can help retirees navigate the transition to unretirement more smoothly, ensuring their financial security and overall well-being.
Disclaimer: Since we don’t know your specific situation, none of this information should be construed as tax, legal, financial, insurance, financial advice, or other advice and may be outdated or inaccurate. It is your responsibility to verify all information yourself. This content is prepared for entertainment purposes only. If you need advice, please contact a qualified CPA, attorney, insurance agent, financial advisor, or the appropriate professional for the subject you would like help with. Streamline Financial Services, LLC or its members cannot be held liable for any use or misuse of this content.
Affiliate Disclaimer: This post may include affiliate links where we may earn a payment when you click on the links at no additional cost to you.
Disclosures: Securities offered through LaSalle St. Securities LLC (LSS), member FINRA/SIPC. Advisory services offered through LaSalle St. Investment Advisors LLC (LSIA), a Registered Investment Advisor. Streamline Financial Services is not affiliated with LSS or LSIA. LSS is affiliated with LSIA.
Retirement planning can seem daunting, but breaking it down into manageable steps can make all the difference. In this blog post, we’ll explore the seven crucial accounts you need to organize for your retirement. We’ll also delve into common mistakes people make with these accounts and some strategies to help you maximize their benefits.
1. Checking Account: Your Financial Hub
Your checking account serves as your financial hub in retirement. It’s where your various income streams converge to cover your monthly expenses. The key strategy here is to establish a comfortable floor balance to ensure you can manage your day-to-day costs without stress.
High-yield savings accounts offer substantially higher interest rates than traditional savings accounts, yet many retirees keep excess cash in low-yield accounts. Consider moving your funds to an online-only bank with FDIC insurance for better returns and security. Be mindful of withdrawal limits and transfer times.
3. Health Savings Account (HSA): Triple Tax Advantages
The HSA offers triple tax benefits: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. It can also be invested, making it a valuable tool to cover healthcare costs in retirement. Be cautious about inheriting an HSA, as it becomes taxable to the beneficiary.
4. Work Retirement Accounts: 401(k), 403(b), and More
Your employer-sponsored retirement accounts are likely a significant part of your retirement savings. Understand the pitfalls associated with holding a large portion of your net worth in these accounts. Evaluate your options carefully as you approach retirement.
5. Individual Retirement Account (IRA): A Personal Savings Option
IRAs offer similar advantages to 401(k)s but are not employer-sponsored. Consider whether contributing to a Roth IRA or a traditional IRA makes more sense based on your current and expected future tax rates.
6. Roth IRA: Tax-Free Growth and Withdrawals
Roth IRAs provide tax-free growth and withdrawals, making them an attractive retirement savings option. Learn about income limits and consider a backdoor Roth IRA if you exceed these limits.
7. Brokerage Account: Flexibility for Tax-Efficient Withdrawals
Brokerage accounts offer flexibility for designing a tax-efficient withdrawal plan. Investments held for more than one year enjoy favorable long-term capital gains tax rates. However, dividends, interest, and capital gains are realized annually, so choose tax-efficient investments.
Strategies for Retirement Success
Retirement success hinges on more than just investments; it’s about nailing the investment plan, income plan, and tax plan. Here are some strategies to consider:
Checking Account Strategy: Maintain a Comfortable Floor
Consider raising your checking account’s floor to cover one to two months of expenses in retirement. This provides a financial buffer for unexpected expenses, reducing the need to move money between accounts constantly.
High-Yield Account Strategy: Secure Cash for Market Downturns
In retirement, it’s vital to have cash or cash-like funds available for several months or even years of income. This safeguards you against selling investments during market downturns. High-yield accounts can serve as a safe harbor for these funds.
HSA Strategy: Bridge the Gap to Medicare
HSAs can help bridge the gap to Medicare by covering certain healthcare expenses. Explore options like paying for healthcare coverage under COBRA or covering Medicare premiums and out-of-pocket costs.
401(k), IRA, and Roth Strategies: Optimize Contributions and Conversions
Determine whether to continue contributing to pre-tax 401(k)s or switch to Roth contributions. Evaluate the ideal time for Roth conversions to manage future required minimum distributions (RMDs) efficiently.
Use your brokerage account to supplement your income while minimizing tax implications. Avoid investments that generate significant taxable gains, and consider tax loss harvesting to lower your tax liability.
Asset Location: Optimize Tax Efficiency
Carefully place your investments in the most tax-efficient accounts. Consider the tax implications of each asset and choose account types accordingly.
Retirement planning requires careful consideration of these seven accounts and the strategic use of each. Remember that individual circumstances vary, so consult with a certified financial planner specializing in retirement to tailor these strategies to your specific needs!
Disclaimer: Since we don’t know your specific situation, none of this information should be construed as tax, legal, financial, insurance, financial advice, or other advice and may be outdated or inaccurate. It is your responsibility to verify all information yourself. This content is prepared for entertainment purposes only. If you need advice, please contact a qualified CPA, attorney, insurance agent, financial advisor, or the appropriate professional for the subject you would like help with. Streamline Financial Services, LLC or its members cannot be held liable for any use or misuse of this content.
Affiliate Disclaimer: This post may include affiliate links where we may earn a payment when you click on the links at no additional cost to you.
Disclosures: Securities offered through LaSalle St. Securities LLC (LSS), member FINRA/SIPC. Advisory services offered through LaSalle St. Investment Advisors LLC (LSIA), a Registered Investment Advisor. Streamline Financial Services is not affiliated with LSS or LSIA. LSS is affiliated with LSIA.
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