Warning: Be Prepared – “Black Swan” Events can Alter Retirement Expectations
People have different reasons for wanting to stay in the work force. “Some retirees continue to earn outside income out of necessity; the income from other sources is not sufficient to maintain the standard of living they hoped for,” says Richard Sturm, a financial adviser, educator and public speaker in Seal Beach, California. “But,” he continues, “other retirees earn outside income to remain active. Some retirees find that they are not remaining as active as they thought they might following retirement, so they seek out part-time jobs to stay busy.”
Sean Moore, Vice President at Alter Retirement Planning in Boca Raton, Florida sees the same thing. He says, “Some found themselves in that situation because a job loss or corporate downsizing forced them to retire earlier than expected. Others have a tough time adjusting to spending less money while retired. Some people like to work. They enjoy the human interaction and having a routine helps them feel “normal.” Not everyone wants to sit on the front porch in their golden years.”
“With our clients,” says Adam Jordan, Director of Investment Research and Management at Paul Ried Financial Group, LLC in Bellevue, Washington, “it is generally not a financially motivated decision but a lifestyle decision. They have a desire to stay mentally engaged in an activity that they enjoy and oftentimes it helps them stay socially active as well.”
It’s not surprising to see different motivators for different people who decide to work during their retirement years. For some, it’s just poor planning and bad luck. Nathaniel C. Propes, Chief Investment Strategist of Capital Management Advisors in Atlanta, Georgia, says, “Retirees continue to earn outside income because they put themselves under unrealistic expectations regarding their lifestyle during retirement. They created this gap in their retirement expectations by increasing expenditures, primarily on their residence, throughout the 90s and early 2000s. Utilization of leverage on their homes caused many to find their mortgage significantly underwater at the same time that their 401k crashed and burned in the 2008-2009 collapse.”
“If someone needs to work in retirement it is usually because they did not save enough early on in their careers or a major unforeseen event changed their retirement trajectory,” says Jamie Hopkins, Esq., Assistant Professor of Taxation in the Retirement Income Program at The American College in Bryn Mawr, Pa., and Associate Director of the New York Life Center for Retirement Income. “These black swan events can be in the form of unexpected medical expenses, bad investments, early loss of a spouse, employer layoffs, or employer bankruptcy and can represent an unknown financial impact when trying to save for retirement. Even the best laid retirement plan can be undone by a black swan event. In those cases, the retiree might have no other option than continuing to work.”
Thomas Scanlon, Financial Advisor at Raymond James in Manchester, Connecticut says, “Some retirees continue to work for health insurance and other benefits. Other retirees may be forced to continue to work due to a lack of planning. They may not have saved enough for retirement or they may be helping out children and grandchildren. Others continue to work because they like to. They never really developed any serious hobbies and want to feel that they are still productive.”
But “Black Swan” events alone aren’t solely responsible for the current generations of retirees defining the meaning of retirement. Both demographic trends and cultural considerations have had a major impact.
Interested in learning more about issues facing today’s 401k investors and how professionals advise them? Check out Mr. Carosa’s upcoming book Hey! What’s My Number?, available later this summer.
Mr. Carosa is available for keynote speaking engagements, especially in venues located in the Northeast, MidAtantic and Midwestern regions of the United States and in the Toronto region of Canada.