We sat down with Tom Blower, a Senior Wealth Planner at Legacy Trust, to talk about retirement planning and supplemental retirement income.
Q: What is supplemental retirement income and why is it desirable for retirement planning?
A: Supplemental retirement income is any additional source of income produced through part-time work after retiring from full-time employment. It is desirable because it does several things, most notably, it reduces the amount of money that you have to pull from your retirement savings, which is important in retirement planning. This in turn allows your savings to continue to grow and work for you, which should produce additional security for you in the future.
Q: That is an interesting argument for supplemental retirement income. Can you elaborate on the actual outcomes on retirement planning?
A: Let’s use some basic math to illustrate the impact of working into retirement: let’s say you are transitioned into part-time work by your current employer to focus on your most effective skills. They pay you $30,000 per year, you work a fraction of the time and you do this for five years. Over that time period, you made $150,000, all of which you ended up using to support your lifestyle. The key here is that you probably would have spent that $150,000 regardless if you were working. So, not only did you not spend down your assets by $150,000 but you have allowed your other assets to grow (in theory) by not using them as much to support your lifestyle expenses. The impact can be very dynamic to your retirement planning.
Q: Should more people consider ways to increase their supplemental retirement income?
A: While adding to retirement income is helpful to everybody, the ways to go about that additional income is not suitable for everyone. Some people are unable to continue working due to health concerns (both physical and mental), deterioration of skills, lack of continued interest from the employer, etc. Other individuals could be burned out from a long working career and cannot fathom the thought of working for one more day.
Q: This sounds great, but how would someone get started planning for this? What should they consider?
A: The first thing you should do is meet with a trusted professional that will work with you on cash flow based retirement planning. Create a conservative model showing you not working any longer, with all of your projected expenses and current assets taken into account. Once that model has been developed, work with your advisor to add $30,000 of income into your plan for a few years and see the impact. It might be all the motivation you need! Then, approach your Human Resources department or another potential employer to gauge interest on the concept of providing your expertise to them on a limited but cost effective basis to them.
An “encore career” is another option for someone considering ways to gain additional retirement income. An encore career is a career that combines personal interest with continued income. Often this type of work can also have a social impact. Many people who pursue encore careers find paid positions in nonprofits, social services, education and environmental fields. These positions could even substitute retirement for some, by providing personal satisfaction after retiring from the corporate sector. Encore careers would essentially kill two birds with one stone – providing supplemental retirement income and also personal gratification.