When you retired, you made the transition from being on a company's payroll to paying yourself with your retirement savings. If you were one of many retirees forced back into a job during the recession, don't despair. You survived the work-retirement transition and you can do it again. We provide six tips to help you make the adjustment.
Adjust Financial Objectives
Before retiring, you were accumulating and saving in anticipation of a future life of leisure. During retirement you were preserving and spending. If you're going back to work, your income needs may determine whether you need to continue preserving and spending or if you have enough extra money to go back to accumulating and saving.
Your choices for saving change if you're over 72.5 because of the age limits for contributing to your traditional IRA and some annuities. Instead, make contributions to a Roth, which doesn't have an age limit, but does have income limits. For younger workers who retired early, take advantage of your new employer's retirement plan.
Check Your Social Security Status
If you are receiving social security benefits and had to go back to work, whether or not your benefits will change depends on your age when you started receiving benefits. In some instances more of your benefits may be taxable due to the additional income. On the positive side, your social security benefits may be recalculated to reflect the additional years of work and could result in a bigger check. Consult the Social Security Administration website to determine the net result of your new income.
The annual social security cost of living adjustment won't take place this year because it is tied to inflation, and inflation is flat. This means you'll have to adjust your own personal budget to accommodate any price increases. (Find out how to work the system to get the highest total benefits the law allows. Check out 4 Unusual Ways To Boost Social Security Benefits.)
- Put Retirement Disbursements On Hold
If you make enough money with your new job that you don't need withdrawals from your IRA, stop taking distributions. The IRS is giving you a break on required minimum distributions for 2009. You don't have to take them out. This should save some taxes.
It also reduces the need to sell deflated investments giving them an opportunity to recuperate. Next year, if you still don't need the income, take the distribution and pay the taxes, then invest the proceeds in a Roth IRA. (Learn some sensible strategies for making your hard-earned savings last for as long as you need them. Check out Managing Income During Retirement to learn more.
- Rebuild Your Portfolio
It is time to adjust your portfolio. You still need growth, because prices will continue to increase, but your portfolio should be weighted toward generating income for your return to retirement. Build a diversified portfolio of short, medium and long-term CDs, bonds, annuities, and growth and income equities.
Even though interest rates are low, parking huge amounts of cash won't generate income for the long term. Getting totally out of the equity market is a mistake because you lose the opportunity to regain any losses you've endured over the last few years. Just like you've already found out, your income needs may continue to increase.
Evaluate Your Insurance Needs
Recalculate the amount of life insurance you need now. Consider outstanding debt, and the amount of legacy you choose to leave behind. If your insurance needs are lower, pull cash value out to use for investments and income. Reduce the face value of the policy, which will decrease your premiums. (The most difficult aspect of this complex product is determining how much coverage you need and why. Read Top 10 Life Insurance Myths.)
- Reconsider Your Lifestyle Choices
Now is the time to explore alternate options for housing, transportation, your proximity to family and even the hobbies you enjoy. For example: if your house is paid off, but property taxes and maintenance costs keep going up, determine if it is indeed worthwhile to keep it. Of course, you want to try to wait for home prices in your area to uptick if you decide to sell. Maybe a condo, retirement village or living with your children is the better option. (Setting a target amount is the first step. We show you how to calculate your goal and how to reach it. Read Determining Your Post-Work Income to learn more.)
Going back to work doesn't have to be a dreaded event. Your new career may lead to new found enjoyment as you age. Make the most of your return to work by preparing for the future.