Should your parents un-retire?
Beth takes on a tricky new money question—and offers expert advice on how to resolve it and how to talk it over in constructive ways.
The situation
Last time I visited my father, he told me he wants to go back to work. He says he’s bored, but I suspect money’s tighter than he wants to admit. My mom and dad split up while I was in college, so he’s on his own. He retired two years ago, at age 62, from his job as an administrator in a medical office. I figure he has Social Security, and I know he has some kind of retirement account, but I guess that’s not enough. Before he retired, all he talked about was how he couldn’t wait to get out of the rat race. Plus, if he goes back to work, will it improve his financial situation when he retires again, for good? Should I talk to him about this?
—Jill, Billings, Montana
The solution
It’s too soon to say for sure what’s going on in your dad’s case, but for many Americans, the retirement years are anything but golden. Nearly half of workers aren’t confident that they’ll be able to live comfortably after leaving the workforce. One big reason? They aren’t saving enough—and almost half haven’t saved anything at all.
The average household nearing retirement age with retirement savings has just $135,000 in 401(k) and IRA accounts—an increase from years past, but not nearly what you need to get by on into old age. Consider this smart rule of thumb: A household needs to save 8.5 times its income at age 60. Now quickly do the math: Let’s say each spouse in a couple is making $55,000 a year, for a total household income of $110,000, at the six-decades mark. That means they should have nearly a million dollars ($935,000) squirreled away when they hit retirement. Quite a bit more than that $135,000 average. It’s obvious that there’s a nationwide shortfall.
I knew that working later in life is a smart financial move, but still I was blown away by brand new analysis from the National Bureau of Economic Research that found that putting off retiring for three to six months has roughly the same effect as saving an extra 1% over 30 years. That’s because the longer you put off retirement, the higher your Social Security check will be, and the more you’ll have saved in private retirement accounts. However, for someone who has already quit work and is contemplating a return, the considerations will be different. Here are some tips for navigating the options with your father.
Broach the subject gently
If you want to understand your dad’s decision, try to find out exactly what he’s planning and why, before weighing in with your own opinion (which, incidentally, you should be open to changing, if the circumstances merit it). Does he have a particular job in mind? Does he plan to go back to work full-time or part-time? If I have my math right, your dad is only 64. If he’s in good health, work is a real option. These days, a record number of people aged 65 and older are still drawing a paycheck.
What about health care?
What’s your dad’s current health plan, and is he intending to keep it? Since he’s younger than 65, he isn’t yet eligible for Medicare. If he’s been paying through the nose for health insurance premiums, that may be one reason why he’s stretched thin. A full-time job, or a part-time job with benefits, could help with this, so it’s worth exploring.
Consider the tax man
Earning a salary again could bump your dad into a higher tax bracket. Many retirees who are taking distributions from an IRA or 401(k) enjoy relatively low taxes, but a brand-new salary could change that.
Re-start saving for retirement
One upside of your dad working again is that he could continue contributing to a 401(k)—if he’s eligible for one at his job—or an IRA. Roth IRAs can be a great idea—investments grow tax free, and since your dad is older than 50, he’s permitted to sock away up to $6,500 a year and doesn’t have to start withdrawing at age 70 ½ if he doesn’t want to, like you do with a regular IRA. A little more retirement savings could help cushion him when he does retire for good.
Crunch the numbers
Your dad seems leery about sharing numbers, but if you take the angle that this is a practical challenge—not a criticism of his savings and spending habits—he may be more open to discussing it. There are a number of factors he should consider. For instance, returning to work has its own costs—commuting, work attire, meals out, etc. There are the health insurance and tax questions mentioned above, as well as possible penalties if he has a private pension and “un-retires.” This worksheet from AARP can help you and your dad figure out whether returning to work makes financial sense.
Do a Social Security wellness check
The decision about whether to return to work gets more complicated if your dad has started drawing Social Security, because his benefits could be reduced by $1 for every $2 he earns above a certain limit (in 2018, $17,040 for people, like your dad, who haven’t reached the full retirement age of 66 to 67). Use the Social Security Administration’s Retirement Earnings Test Calculator to figure out how much your dad will lose in benefits if he returns to work.
Brainstorm ways to cut expenses
If your dad can’t or won’t return to work, another option is to tighten his belt. (Even if he does go back to work, this is a good idea.) If he lives in a house, can he downsize to a condo or apartment? Can he ditch the car he has for something cheaper, and reduce or lose his car payment altogether? Home and transportation are big expense areas, but smaller cuts help too: less eating out, cheaper cable (or none at all), less shopping. You and your dad might get something from reading novelist Ann Patchett’s recent New York Times essay on banning shopping for a year and its host of benefits—and then take the challenge together if this is something you can afford to do. It would give you something to bond over, and you could both save money.
