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Putting off Retirement

How does delayed retirement affect financial planning and wealth management?

As appeared in Wealth magazine

Putting off Retirement

How does delayed retirement affect financial planning and wealth management?

If you love working, why stop? That’s the question a growing number of people ask themselves – not just those whose retirement plans were delayed by the recession. Retiring by 65 may be the traditional view, but those who see their lifestyles, social networks and self-identities as inseparable from their careers are not in any rush.

“A lot of my clients are not emotionally ready to retire,” says Sue Smith, CFP®, Northern Trust senior financial consultant. “They want to stay active in what they enjoy, and that’s going to work.”

The percentage of workers expected to retire after age 65 has increased from 11% in 1991 to 35% in 2015, according to the Employee Benefit Research Institute 2015.

If you are among the growing number of people who choose to continue working later in life, consider the impact of delayed retirement on your investment portfolio and estate planning.


Why Wait to Retire?

Those who forego traditional retirement do not necessarily sign on for a lifetime of 50-hour work weeks or the demands of executive-level corporate positions. They are more likely to opt for less-stressful pursuits, such as starting a business for fun, serving on corporate boards or pursuing a social-entrepreneurial venture.

Second-career workers do not tend to be concerned with bringing in a salary on par with old jobs, Smith says. In some cases, post-retirement pursuits aren’t even jobs, but rather substantial time commitments to charitable work. In either case, clients want to remain active in their communities and continue doing what they enjoy.

“If people have a large surplus [of retirement savings] and feel comfortable, they are more likely to choose something fun or philanthropic,” she says. “If they’re concerned about expenses, they’re more likely to stay within their industry and sit on a couple of corporate boards.”

One Northern Trust client became a professional speaker after retiring from her dual jobs as a business owner and college professor of public speaking.

“These are people with strong business acumen,” says Northern Trust Wealth Advisor Mitch Helton, CFP®, adding that his clients want to keep using their business skills, but with less stress and time commitment.

Implications of Delayed Retirement

Regardless of how you spend your golden years, there is a common theme in planning for retirement and structuring estates. The goal is to make it through retirement without running out of money or depleting the estate to the extent that other personal goals, such as leaving money to family or charity, are affected.

The first step to accomplishing that is planning. Changing your retirement age or shifting to a second career with a different income level will affect your long-term financial prognosis. If you are considering either scenario, revisit your current retirement and estate plan to see how these changes – not to mention the recession – could affect the outlook.

The impact of later retirement on investment portfolios varies based on estate size. If you choose to continue working for personal fulfillment rather than financial gain, Helton recommends an aggressive gifting approach to avoid having your continued income contribute to an increasingly taxable estate down the road. One possible solution is to use wealth transfer vehicles such as a Qualified Personal Residence Trust, which can remove the value of a personal residence from the taxable estate, or a Grantor Retained Annuity Trust, which facilitates gifts to family members in a manner that compresses the tax burden.

Another component of this strategy is to make some gifts now that might otherwise have been executed as part of the will. That could mean pre-funding sizable charitable gifts or giving family members annual gifts of up to $14,000 per person, the current threshold for which such gifts can be made gift tax-free.

Smith says more clients are paying their grandchildren’s college tuition because tuition payments paid directly to the institution aren’t subject to gift tax. The same goes for medical care.

Having a Backup Plan

Even if you plan to work later in life, Helton recommends having a contingency plan in case circumstances change. That’s because even though people can lead active, productive, professional lives into their 70s and 80s, advanced age does increase the odds of unexpected health-related expenses.

“A lot of business owners tend to think they’ll stay actively involved with the business until they die. But then reality sets in when they have a major health issue or someone close to them has a major health issue,” he says. “Then they have to think about making a transition. Transfer planning always benefits from planning and time – neither of which may be available at that point in time.”

That transition is far easier if there’s already a plan in place.

Whether people choose to delay retirement because they can’t bear to imagine life without work or feel they still have more to accomplish professionally, continuing to work can be a healthful, rewarding decision – and perhaps even more enjoyable than retirement.

It’s a big decision, though, and one that should be preceded by careful planning to ensure you can retire with confidence that your estate will be protected against risk and that you will be free of financial worry.