When you plan for retirement, you need to consider all potential sources of income. Unfortunately, many pre-retirees make the mistake of considering a source of money they aren't likely to have: funds from working a job.
According to research from Transamerica Center for Retirement Studies, 55% of workers plan to continue working in retirement. Though most of these pre-retirees expect they'll work only part-time, 14% say they intend to work in a full-time position. For some, the motivation is to stay active and healthy. For most people, concern about having sufficient savings drives the desire to stay in the workforce in some capacity during retirement.
This could be a big problem.
Many people who want to work in retirement find they can't do so because of limited job opportunities. The unemployment rate for seniors is higher than for the general population, and though age discrimination is illegal, many older people find it difficult to find work.
Employment opportunities could be limited by your physical health. If you develop medical problems, this could further reduce the pool of jobs you can do and make it even more difficult to maintain part-time or full-time employment.
What should you do if you planned to work but you can't?
If you planned to work in retirement but you discover there are no jobs you can do, you need to make some swift changes to your lifestyle.
Start by assessing the amount of income available to you from Social Security, retirement savings and any pension money you have. Make sure you calculate income from savings based on a safe withdrawal rate. This should be no more than 4% of your account balance, though some experts suggest it should be even less.
Compare the income available to you with your budget to see if there's a shortfall. If you'll have too little income without a paycheck and you can't find work, you need to make some budget cuts quickly. This could mean downsizing to a smaller home, which could help you boost your savings account balance if you cash out home equity. You might need to give up a car or move to an area that has a lower cost of living.
The key is to make sure you don't draw down your retirement account balance in an effort to maintain a lifestyle you can't afford without the paycheck you planned on having.
Avoid setting retirement goals based on the idea you'll work as a retiree
Though you may want to work as a senior, chances are very good you won't be able to. To make sure you aren't left with too little money when holding a job isn't possible, always set your retirement planning goals without the expectation of a paycheck. If working is doable, you can use the extra income to enjoy your life a little bit more.
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