Planning to work in retirement? Read this
Retirement can be a tough adjustment when it comes to income.
Federal employees who cease working entirely in retirement immediately become reliant on a combination of income sources that are finite, as in the case of Thrift Savings Plan accounts and other savings and investments, and those which provide a lifelong income stream, such as federal annuities and Social Security.
While someone who has been an extremely conscientious saver and planner may be able to take this transition in stride, many — if not most people — adjust their spending and lifestyle to bring it into line with their new retirement income.
But a growing number of American retirees — public- and private-sector alike — are choosing to continue to work in retirement; either to supplement retirement income or to fully replace (for a time) the income gap brought on by retirement.
According to Social Security Administration statistics cited in a recent report from the Government Accountability Office, in 2008 in households with someone 65 and older (which could include spouses younger than 65), employment earnings brought in 29.7 percent of income.
SSA found pensions and annuities that year accounted for 18.4 percent of aggregate income (pension income data included regular payments from defined benefit and defined contribution plans and from IRA and Keogh accounts, but not non-annuitized or lump-sum withdrawals.) Beyond pensions and annuities, Social Security provided 36.5 percent of aggregate income, income from assets accounted for 12.7 percent and income from veterans benefits and other sources accounted for 2.1 percent.
Rising long-term unemployment
Federal retirees, of course, have advantages over most older Americans in terms of health insurance and annuities. That means that health insurance does not have to play into any post-retirement employment plans. That’s a good position to start from.
At the same time, older workers (defined in the GAO report as workers 55 and older) seeking employment — especially full-time employment — are having a tough time becoming reemployed once they are out of a job.
According to the GAO report, over the course of the recession that began in 2007, long-term unemployment rose at a greater rate for older workers than for younger ones. By 2011, 55 percent of unemployed older workers had been actively seeking a job for more than half a year. “Meanwhile,” the report notes, “the long-term trend of rising labor force participation rates among older workers has continued …”
Bottom line: More older Americans want to work, and there is a greater portion of older workers among the ranks of the long-term unemployed.
Consequently, feds who have laid out retirement plans that include a significant amount of post-retirement employment income — and who fail to gain that employment — could face many of the same challenges faced by other 55+ Americans in the ranks of the long-term unemployed.
GAO lays out some of those challenges in the report, things like struggling with mortgages and accumulating debt. Long-term unemployment can force a person to stop saving for retirement and draw down retirement savings earlier than planned. That means either less money later or working for more years to build those savings back up. Long-term unemployment also can motivate people to claim Social Security retirement benefits earlier, resulting in lower monthly benefits for them and their survivors for life.
While it’s illegal to discriminate against older workers, it happens, GAO found.
From the report: “Many experts, one-stop career center staff and other workforce professionals we interviewed said that some employers are reluctant to hire older workers. Because of legal prohibitions against age discrimination, employers are unlikely to explicitly express a lack of interest in hiring older workers; however, one workforce professional told us that local employers had asked her to screen out all applicants over the age of 40. Focus group participants perceived employer reluctance to hire older workers as their primary reemployment challenge, and several cited job interview experiences that had convinced them that age discrimination was limiting their ability to find a new job.”
On the bright side, the fact that federal retirees retain health insurance benefits may give them an edge in this environment. The GAO report: “According to experts we interviewed, a key reason employers are reluctant to hire older workers is that they expect providing health benefits to older workers would be costly. Several employer surveys corroborate this concern.”
But GAO noted that a lot of other factors also weigh against older workers, as well. Among the reasons experts said some employers resist hiring older workers:
- Higher wages older workers previously earned.
- Workers who had held high-level positions will be overqualified and unhappy in a lower-level position.
- Older workers may not be happy working for a younger, less experienced supervisor.
- Lack of up-to-date skills with computers and other technology.
- Bad return on training investment because older workers may not want to work much longer.
If you want to see more, the full GAO report is here.
So … it's cliché time: Look before you leap. Retirement always looks good. Just like the grass on the other side of the fence.
Posted by Phil Piemonte on May 18, 2012 at 4:02 PM