Retired, but working? How it impacts your financial plan

A long time ago in a galaxy far, far away, seniors relied on the three-legged stool to navigate the financial universe in retirement: A pension, Social Security and their own investments.

But in our galaxy, traditional pensions are disappearing, longevity is rising and investments, as well as savings, are inadequate. So the stool has a new leg: Work.

Working past the traditional retirement age isn’t a new trend, but it’s on it’s way to becoming commonplace. The latest labor force data shows just how much older Americans are relying on the labor market to bolster their retirement security.

The unemployment rate for workers over age 55 in December was 3.2 percent, the lowest since the economic recovery started in 2010 – and far below the national jobless rate of 5 percent. Moreover, the labor participation rate – which includes people looking for

work and those who have jobs – was 39.8 percent, close to its peak of 40 percent in 2012, according to analysis of government data by Teresa Ghilarducci, an economist at the New School for Social Research in New York. In 1995, she reports, only about 30 percent of workers over 55 participated in the labor force.

The trend will continue, Ghilarducci says. “The numbers can only continue to rise from here.”

That creates some new challenges when it comes to crafting retirement plans. Assumptions need to be revisited – everything from restructuring retirement income models, to account withdrawal sequences and tax implications to the strategies for claiming Social Security and Medicare.

I discuss implications in this month’s column.

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