What if Your Employer Wants You to Retire Slowly or Come Back From Retirement? Be Ready with a Plan

Roughly 25 percent of the U.S. workforce is nearing retirement age, according to a recent survey by Hewitt Associates. This has important ramifications for the retirement many Americans will have in the future.

The consulting firm reported that out of 140 mid-size and large employers, 55 percent already had evaluated the impact that potential retirements could have on their organization, and 61 percent have developed or will develop special programs to retain targeted, near-retirement employees. Only one in five said that phased retirement is critical to their company's human resources strategy today, that number more than triples to 61 percent when employers look ahead 5 years.

What’s phased retirement? Conventionally, it’s the process of allowing employees who have reached 59 ½ to cut their hours while voluntarily receiving a pro-rata portion of their pension annuities. The company gets to keep its intellectual capital in place a little longer while the worker gets to segue into retirement gradually while accessing some of their retirement assets along the way. Provisions in the Pension Protection Act of 2006 made it easier for companies to create phased retirement strategies.

Hewitt said that in addition to retaining current employees, employers are reconsidering their policies toward rehiring retirees. While 45 percent indicated they currently have policies in place that limit the ability to rehire retirees, 46 percent said they were likely to review their rehiring policies in the future.

What kind of consideration process should you undertake if your employer offers this option? A good first step is to consult a financial planner such as a CERTIFIED FINANCIAL PLANNER™ professional to talk through the possibilities:

Envision how a phased retirement or return to your workplace would affect your life: If you’re reviewing your retirement planning at any age, it makes sense to ask yourself under what conditions you’d leave the workplace or return to it. If you were offered phased retirement, how would you deal with the cutback in responsibility and hours? Some people thrive on work relationships and might not know what to do with significant time outside the office. You obviously need to know based on current projections how much money you’re likely to gather from savings and other retirement resources. Then you need to consider how much money you’d be satisfied making in your post-retirement working life and for how many years you’ll earn that income.

Check what returning to work will do to your total retirement income: You obviously need to know based on current projections how much money you’re likely to gather from savings and other retirement resources. Then you need to consider how much money you’d be satisfied making in your post-retirement working life and for how many years you’ll earn that income. Early retirement transitions can have some adverse effects particularly where pensions are involved. But, if the place where you spent your career comes calling, you might get some attractive pension incentives to get people to come back. Talk these options over with both financial and tax experts.

Can you negotiate for benefits? If you’re investigating post-retirement employers, including your own, see what benefits you’ll qualify for, and take a close look at educational benefits that may allow you to upgrade your skills for free. If your company will pay you to go to school and give you the time to actually work on a degree, that might be a very nice incentive indeed.

Consider insurance issues: If you are a retiree returning to the workforce and you’re already receiving Medicare or covered by a “Medigap” policy, you may be able to lower your costs or improve your coverage by accepting group coverage as primary underwriter of their medical expenses. Since people over age 55 are generally the greatest users of the healthcare system, coverage issues are particularly important to run by a financial expert.

Keep saving: If you return to the workplace, see what you can do to take advantage of any new wrinkles in your employer’s 401(k) plan or any other tax-advantaged retirement savings benefits, particularly if they match your contribution. Don’t miss a chance to enhance your retirement savings, even if you’ve already retired once.

December 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.

After a Turbulent 2008, Make Some New Year’s Resolutions for a Financially Healthy 2009

Money worries are the most common cause of holiday stress, according to Mental Health America. The 2006 study showed that parents are more stressed than all other demographic groups by finances and females are more likely than men to feel stressed by finances.

Money isn’t everyone’s No. 1 worry, but if it’s yours, why not consider the following New Year’s resolutions to improve your financial life?

Resolve:

1. To write down your goals: Have you ever written down the big things you want in life? Granted, all great dreams don’t cost money, but many of them do. Money buys freedom – to travel, to retire early, to start a business, to change careers. Putting goals in writing gives them a formality and a starting point for the planning you must do.

2. To evaluate your risk tolerance: One of the most beneficial things financial planners do is help you articulate your financial goals and establish (or re-establish) your tolerance for risk. With the market turbulence that’s marked 2008, many individuals would benefit from an analysis of how much risk they want – or need – to take given what they want to achieve with their money.

3. To track your spending: If you haven’t purchased financial accounting software or set up a reliable accounting method of your own, this is the year to do it. Diligent expense tracking is the first critical step to getting personal finances in order.

4. To consider advice on taxes and planning: Maybe you’ve always winged it with your taxes and considered your company 401(k) the ticket to your financial future. Chances are your planning is inadequate. Start getting references on good tax professionals and consider sitting down with a CERTIFIED FINANCIAL PLANNER™ professional to discuss your current retirement savings picture and what you can do to improve it.

5. To cut your credit card debt: If you can’t ever seem to get yourself completely out of credit card debt, make this the year to do it. Take inventory of your balances, figure out if you can consolidate them under your lowest-rate card, and resolve to pay off an amount that exceeds the minimum – on time, every month. Oh, and pay cash from now on.

6. To save: If you haven’t signed up for your employer’s 401(k) plan or begun a savings plan tailored for the self-employed, this is the year. And resolve to save at least 5-10 percent of your take-home pay based on your cash flow, and place the maximum in whatever retirement savings plans you qualify for.


7. Get ahead on your mortgage: This advice isn’t for everybody, but if you’ve paid off your credit cards by paying more than the minimum, you can apply the same principle to your mortgage payment. Every dollar you prepay will potentially save thousands in interest over the life of the loan if you plan to stay in your home long-term. In fact, if you make one extra payment a year, either at once or in equal monthly shares over the course of a year, you can cut at least five years of payments on a 30-year loan. Just don’t short your retirement investment plans to accomplish this.

8. Invest in yourself: If going back to college or taking specific coursework will help you advance in your career, plan to do it. If investing in a health club membership that you actually makes sense for your health as well as your insurance costs, do it.

9. To redefine the way you shop: If you’re an impulse shopper, break the habit in ’09. As a suggestion, get a legal pad and make that your centralized shopping list – use a single page for groceries, stock-up goods (it’s wise to start buying essentials in bulk if you can measure the savings), essential clothing or big expenditures you’ll need to make at specific times. Taking that pad with you wherever you spend money is a good way to keep a grip on your wallet as long as you don’t stray from the list.

10. To attack that miscellaneous column: Do you really need deluxe cable? How much are you paying for your Internet service? Can you wear a sweater around the house and lower the thermostat? In every budget, there are items that can be cut – or at least trimmed. Take a hard look at all your “essentials” to see how essential they really are. Aim for a target of at least 10 percent and start setting that money aside on a regular basis.


December 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.

Helping Your Kids Recover after a Major Money Mistake

The average college graduate is $20,000 in debt, and today’s young adults are clearly exposed to more opportunities for self-directed financial disaster than any group in history.

Despite the current credit crunch, credit cards are still a common way most young people afford their new adult lifestyle, and rising costs on everything from rent to gasoline presents deeper challenges.

So it happens. Your kid gets in trouble with those credit cards, loses a job, or can’t find a job to pay the sum total of the rising debt he or she has. What can you do?

Make sure you can afford to help: It’s tough to say no to a financial bailout for your kid, but depending on the level of trouble he or she is in and your own financial responsibilities, you may need to. Here are some ideas:

Both sides should come clean: Remember that this situation is as much about the relationship as about money. The decision to help a family member with money problems requires understanding – lecturing tends to work not so well. But it’s right to encourage your kid to take a frank look at their financial situation and if they are in debt trouble of any kind, they should get help. It’s also important that you show confidence that they will make it through this.

Consider a joint talk with a financial planner: A financial planner, such as a CERTIFIED FINANCIAL PLANNER™ professional, can look at their financial situation and your own and give you both a road map on how to work through your child’s money problems and set up better money management techniques for after the crisis.

Should help be considered a gift? Actually, this is a good first question in any scenario where you offer help to a friend or family member. What happens if you don’t get the money back? For the sake of the relationship involved, it might make sense to think through that possibility. Would the potential loss of money injure you, and worse, will it injure the relationship? This is why it might be a very good idea to present this solution as a one-time gift – and then stick to it.

But if it’s a loan: You need to structure it professionally with clear consequences if it goes unpaid. Handled correctly, such a solution can offer benefits for the borrower and lender alike. Terms should be at arm’s length to meet IRS rules but it can still be more attractive than the child could obtain in the current marketplace. But there’s the potential for incredible downside. Unclear agreements can lead to missed payments or default. If the borrower dies suddenly, the lender’s investment may be lost if the agreement isn’t structured correctly. A properly executed promissory note is still an obligation of the estate, and may continue to be paid to an heir or other person or entity based on the terms as agreed. It is advisable that the loan agreement be in writing and properly executed to meet IRS rules.

Work with them on budgeting: It’s not going to be enough to solve the immediate problem. Even if you don’t use a financial planner to help you both work through the situation, it’s important to set a clear financial course for your child going forward. They obviously have to have a stake in the planning, but you’re going to have to provide guidance.

Encourage them to start an emergency fund: Even if your child only has a few cents in their pocket after settling their troubles, encourage them to start an emergency fund. Optimally, they’ll need to stash away three to six months’ worth of living expenses, and even if it’s just a small start, it’s part of the recovery effort.


December 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.

Taking Steps to Safer Investment Decisions in 2009

It’s tough to tell how much one investor can do alone to preserve their assets in 2009, particularly with unprecedented government intervention in world markets. But there are some general ideas to employ as markets and economies hopefully stabilize in the New Year:

Start with a plan – or review an old one: If you’ve worked with a good financial planner, you should be able to articulate your long-term investment goals by yourself. If you can’t discuss such goals in detail, it might be time to meet with a financial advisor including a CERTIFIED FINANCIAL PLANNER™ professional. Much of the riskiest investing, overbuying and panic selling during the late 1990s and early 2000s could have been avoided if individual investors had sought advice for achieving long-term specific goals such as retirement or a college education.

Check all your assets in banks: As a result of federal economic bailout legislation, the Federal Deposit Insurance Corporation (FDIC) temporarily raised the per-deposit account, per bank coverage level from $100,000 to $250,000 through Dec. 31, 2009. Certain retirement-related accounts carry $250,000 of FDIC coverage, but again, check in with your bank to make sure you’re covered, and if not, get the right advice for moving funds so you don’t incur an unexpected tax liability or fees.

Review your risk tolerance: Having a plan doesn’t mean make the plan and leave it to sit for years. You and your planner should decide when it’s time for a review of your investment goals and your feelings about them. An annual conversation makes sense if nothing’s going on, but when unusual circumstances in life or the markets take place, a phone call might be a good idea.

Check your credit: No one knows how long it might take to unravel the nation’s current credit situation. That’s why creditworthy individuals might want to delay looking for new lines of credit until things loosen, and it’s definitely a good time to schedule review of each of your latest credit reports at staggered intervals throughout the next year. Why? Because in tough economies and times of tight credit, identity theft might be on the rise, and you’ll need to make sure the information on your credit data is truly your own.

Pay attention to your cash: You should have an emergency fund of three to six months’ worth of living expenses in case your job situation goes south, but the market turbulence we’ve experienced also highlights the need to be somewhat liquid in your investment positions so you can take advantage of certain opportunities. Not every investment that’s lost value is necessarily a bad investment, and with careful study, you should be able to have cash on reserve so you can capitalize on legitimate opportunities.


Re-budget: It’s a good time to make a budget or re-assess the one you have. Though the federal government would love for consumers to start spending again to lift the economy, that doesn’t mean you have to jump in with both feet. Keep your spending smart, your debt low so it’s easier to set savings and investment priorities that will do you the most good when the economy and the market come back.

Check your retirement: How will the activity in the market affect your retirement timetable? You might want to continue working full-time or plan a phased-in approach as you continue to build assets. There is a great danger now that people may become either too risk-adverse or assume too much risk in planning for their retirement, and that’s why it’s wise to get advice.


December 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.