Saturday, January 18, 2014

Providing Additional Financial Security Through Partial Retirement

Our grandparents might give us a funny look when we mention a “partial retirement” to them.  However, for those of us nearing retirement or even for those who have 30 years or so ahead of us, partial retirement might be becoming more a fact of life. 

As Amy Hoak notes in her article, “The rise of the ‘partial retirement”, “In fact, 20% of workers between the ages of 65 and 67—and analyzed in a recent University of Michigan Retirement Research Center study—are partially retired, up from 5% to 10% in 1960. More workers are slowing down earlier, too: 15% of those 60 to 62 years old are partially retired. According to the report, in 1960, partial retirement among this younger group was “virtually non-existent.”

But partial retirement might not be that bad of an idea, and it could actually help protect us in several major areas of our retirement future.

Combating rising healthcare costs
According to a November 2013 Huffington Post article, “From 2000 to 2011, U.S. health care spending increased from $1.6 trillion to $2.7 trillion -- a big leap owing almost completely to factors other than increased demand, from the elderly or anyone else. More than nine in 10 of those dollars spent, the study found, paid for higher treatment and drug costs.”

Meanwhile, a article reports that the average spent on health-related costs not covered by Medicare is about $135,500 according to 2012 data from the Employee Benefit Research Institute.  It also found that Ameriprise noted that experts predict Americans could need $227,000 for health-related costs not covered by Medicare by 2020.”

With retirement for my wife and I still a good 30 years off, who knows how much health-related costs will be in 2040.  However, being able to rely upon part-time work and even potential work-sponsored health benefits from this work could be a big help in covering some of these costs.

Minimizing popping bubbles
Who knows when the next financial bubble will pop or what sort of bubble it will be.  The tech bubble, housing bubble, and financial crisis are just a few recent examples of what could happen when it comes to financially devastating events.

According to a September 2013 CNBC article, “Four months ago something troubling happened in the housing market. The home price affordability index tracked by the National Association of Realtors slipped below its long-term trend line, marking a possible beginning of a housing bubble.”

With the financial crisis cutting my retirement account nearly in half, and the housing bubble sucking tens of thousands of dollars worth of equity out of our home, partial retirement could be a great way to hedge against the extreme and often unexpected financial effects of a popping bubble, whatever they might be.

Furthering family financial security
A article from February 2011 reports that “As a whole, baby boomers are expected to receive an estimated $8.4 trillion in inheritances; they’ve gotten $2.4 trillion already with $6 trillion more on the way, according to the Center for Retirement Research at Boston College. That works out to a median amount of $64,000…”

While it might be a pipe dream, I hope to leave more to our children than this $64,000 amount.  And though any number of factors could affect this aspiration, partaking in a partial retirement could allow us to better protect our retirement savings by utilizing this extra income as a supplement to cover expenses.  This could help us maintain or even grow our savings, which could help us one day leave more to our children.

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The author is not a licensed financial professional.  This article is for informational purposes only and does not constitute advice of any kind.  Calculations have not been verified by a professional.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

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