In the last post, “It’s Not Your Father’s ‘Retirement’ If It Ever Was”, I talked about three basic retirement lifestyles based on whether you choose to continue working, and if so, part or full-time. Here is a chart that shows some of the similarities and differences between these lifestyles. As time goes on, you may change from working full-time to part-time or stop, so some of these items may be more applicable to you at different times in the future. In the next post in this series, “Retirement Planning 101: Getting Your Bearings,” I’ll discuss the role of your household balance sheet in Lifetime Financial Planning.
| It’s Not Your Father’s ‘Retirement’ Anymore | |||
| Kicking-Back | Balancing Act | Keep-on Keeping-on | |
| Employment: | Have stopped working! No more earned income. | Part-time employment or part-time self-employed. Less earned income than before. | Continue to work full-time until some later date, hopefully with current earned income level |
| When to Begin Collecting Social Security: | Defer if possible to increase benefit unless in poor health/shorter life expectancy or need the income | Defer until later date to increase benefit and avoid taxes on benefit unless part-time earnings do not trigger SS taxes and if poor health/shorter life expectancy or need the income | Defer until later date to avoid taxes and increase benefit unless full-time earnings do not trigger SS taxes and if poor health/shorter life expectancy or need the income |
| Working and Collecting Social Security: | Not working! | Benefits reduced until 66 (Full Retirement Age) $1 for $2 earned income over $14.6k. No reduction after FRA. Benefit reduction is credited (but not paid out) as if filing was deferred. | If your earned income is more than double your SS benefit, there is no point in filing before FRA. |
| Social Security and Taxes: | If taxable distributions from retirement accounts plus SS exceeds $25k and $34k thresholds, SS benefits are up to 50% and 85% taxable | If all income — earnings and taxable distributions from retirement accounts — plus SS exceeds $25k and $34k thresholds, SS benefits are up to 50% and 85% taxable | If all income — earnings and taxable distributions from retirement accounts — plus SS exceeds $25k and $34k thresholds, SS benefits are up to 50% and 85% taxable |
| Resources: | Savings, pensions/SS | Earnings, savings, pensions/SS | Earnings, savings, pensions/SS |
| Lifestyle: | Don’t need to work, prefer not to, may be involved in volunteer or other non-income activities, leisure, family | Like working and being productive/busy and/or need the income, have some savings | Like working and being productive/busy and/or need the income, have little savings |
| Specific Risks: | Long term care — those who are healthiest may be more at risk of needing long-term care | Longevity — will savings last? | Health or employer issues may cut work short of needed savings/cash flow goals |
| Common Risks: | Future Social Security and Medicare benefits, health insurance (Medigap), healthcare expense, long-term care expense, inflation, the economy, sovereign debt, market volatility, rising taxes, spending too much/outliving savings, estate planning, and government policy change | ||
| Financial Planning: | May have time/inclination to be more involved in personal financial and legacy planning | May be struggling with expenses and managing cash flow from income and savings | Too busy working to plan — working is the plan! |
| The Benefits of Financial Planning: |
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