What Does Working in Retirement Mean, and How Do I Do It? – TheStreet

By Will Gunlicks, CFP

As a financial planner and advisor, my goal is to help clients make important transitions from job to job, and from working to retirement. These transitions can often be difficult and stressful, but with a solid plan in place and a measured approach, its possible to find success in the long run.

Will Gunlicks

A trend Ive seen in recent years involves the desire to work in retirement not at the same job, or even the same industry, and usually not at the same number of hours. People are deciding to leave their long-term job or career but theyre not leaving work entirely. Instead, theyre looking for something new, and perhaps, more fulfilling. While the global pandemic has helped influence this trend, research by Savant Wealth Management and Absolute Engagement found that the urge to work differently in retirement has been building for years. In the study, nearly 70% of respondents told us they would transition to a different kind of work or work on their own terms if they thought it was an option.

If youre considering working differently after your primary career, youre likely to meet plenty of peers in the same boat. But before you decide to be retired and working, I encourage you to consider these three questions:

An old saying, attributed to Alice in Wonderland author Lewis Carroll, reminds us that if we dont know where were going, any road will get us there. But what happens when you arrive to find that you dont like the destination?

To map out your desires and dislikes for your potential work in retirement, you need to start with your vision for the future. What are the goals that working would help you achieve in the short-term, or even in the long term? In your vision of the future, what are you doing and who are you with? How are you spending your time, on or off work? Perhaps youd like to turn a lifelong hobby into a paid position. For example, if you love golf, you might consider working at a golf course with colleagues that share similar interests. Your vision and goals will help narrow the universe of possibilities and help you identify the types of industries and/or jobs that seem most appropriate for your situation. Stating your goals in one or two written sentences can also help you start a firm blueprint for your next chapter.

Next, try jotting down your anti-vision of working in retirement. What do you not want your job to entail? What impact do you not want it to have on your life, or the lives of your loved ones? Mapping out the effect a poor choice could have on your time, money, relationships, and mental and physical wellness helps clarify what you do want. Your anti-vision can often translate into positive goals, such as making an impact in your local community, traveling more with your spouse or family, caring for an aging parent, or pursuing a hobby that fell by the wayside while you were too busy working.

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Once you determine your vision and goals, its time to focus on the financial implications of your potential transition to help ensure you can maintain your planned lifestyle through retirement. Your evaluation should include these five areas:

Understanding cash flow and expenses. While many people dont follow a budget throughout their lives, creating one now can help you understand if your transition plan will work. As part of this exercise, youll need to identify which expenses are fixed (such as your mortgage, car loans, utilities, etc.), and which are discretionary (dining out, entertainment, vacations, etc.).

Next, examine your sources of income in retirement. You may receive cash flow from a pension, Social Security, rental income, or your portfolio in addition to your planned work income. To feel truly confident about your finances in retirement, consider using a robust projection calculator, or working with a CERTIFIED FINANCIAL PLANNERTM professional to crunch the numbers and test your assumptions. This exercise can help you determine your level of financial independence as well as identify how much potential income you may need from your next job.

Healthcare coverage. The next key area involves planning for the healthcare coverage you will need prior to age 65, when Medicare will start. Several options can fill this gap, including COBRA insurance from your current employer, coverage from your spouse or partner, an Affordable Care Act policy, a private market policy, or even a part-time job that includes eligibility for health insurance benefits.

Reviewing retirement accounts and other benefits. The third item includes reviewing, in detail, your retirement accounts and existing employee benefits. Before you make any big changes, youll want to understand the critical milestones, ages, and vesting schedules you'll need to consider and coordinate into your overall plan. Your company retirement plan, such as a 401(k) or 403(b), likely comprises one of your largest financial assets. If you plan to tap into your retirement account, youll need to review the rules first. Up until age 59 1/2, any distributions you receive from retirement accounts could be taxed and subject to an additional 10% early-withdrawal penalty. However, a special provision allows you to avoid penalty if you separated from service after age 55 and those dollars remain in your 401(k). If you roll those funds to an IRA, you could lose penalty-free access.

Creating a tax strategy. Your fourth key action item is to develop a multi-year tax strategy for at least the first five years of your transition. Up to this point, you likely havent had much control over your taxable income if youve earned W-2 wages. Your tax return could look very different as you transition to your new chapter, and you may find yourself with a lot more control over the sources of your income, how much you earn, and when you receive it.

The period between the end of your traditional working life and age 70 (the latest age to begin collecting Social Security) represents your strategic tax window, because you will have much more control and more opportunities for tax savings. One popular technique to consider to help save on taxes during this strategic tax window includes converting pretax IRA dollars into a Roth IRA, especially if youre in a relatively low marginal tax bracket in a given year. The second popular strategy to consider is to trade out of concentrated positions, like company stock, or other positions that have high unrealized capital gains at low or even 0% rates, if you fall under certain tax thresholds.

Investment alignment. Your overall portfolio allocation and investment mix can make or break your entire transition plan. Youll need to test your overall risk level, or the mix of stocks and bonds in your portfolio, to ensure your future expected return is high enough to keep up with inflation and the growth you need within your nest egg. Youll also need to ensure the amount of risk you're taking in your portfolio doesnt stretch beyond your personal comfort level.

Another critical component of investment alignment is making sure you put the right assets in the right accounts to ensure your overall portfolio mix is tax efficient. Your traditional or Roth IRA, as well as any taxable brokerage investment accounts, often contain a variety of assets, such as stocks, bonds, or liquid real estate. Each involves a different tax treatment, so placing the right assets in the right accounts supports long-term tax efficiency.

The final step to create your retired and working plan is to figure out how to find that next job that fits perfectly with your vision, goals, and overall financial situation. Financial planners and advisors often help clients with the first two steps, but Ive found that also using a career coach for the final step can be a tremendous boost and benefit to making this plan a reality. Mary Ellen Ball, a career coach and owner of Open Delta group, shared her thoughts with me. According to Ball, the transition steps you take may appear simple on paper, but require thoughtful planning (financial and logistical), as well as deep accountability. Her recommendations include:

Transitioning into a retired and working phase in your life can prove to be very rewarding and satisfying when done with careful planning. Hiring professionals, such as a CERTIFIED FINANCIAL PLANNERTM professional and/or a career coach, could also potentially provide you with partners and a sounding board to make this the best transition possible. Best of luck in your retired and working journey!

William V. Gunlicks is a financial advisor and team lead at Savant Wealth Management, a fee-only, independent registered investment advisor. A CERTIFIED FINANCIAL PLANNERTM professional, Will has been involved in the financial services industry since 2003.

This is intended for educational purposes only and should not be construed as personalized investment or tax advice. Please consult your investment and tax professional(s) regarding your unique situation.

Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP and CERTIFIED FINANCIAL PLANNER in the U.S., which it authorizes use of by individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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What Does Working in Retirement Mean, and How Do I Do It? - TheStreet