Question: How will we fund the independence we dreamed of in our retirement?
Given the volatile economic climate, the road to retirement has never been bumpier. Many Americans are underwater on their homes and are desperate to get out of them. According to a recent feature at American Public Media, 56.9 percent of homeowners in Nevada are underwater on their mortgage, with rates in Arizona (38.6 percent) and Florida (42.1 percent) quite high as well.
For those who are parents, college tuition costs are spiraling far higher than the rate of inflation over time, and the same can be said for health care costs.
Perhaps it's because of these challenges that many baby boomers are deciding that retirement in the traditional sense is no longer right for them. Subsequently, many have taken up "encore careers" that provide the opportunity to continue earning an income through a small business, part-time job or consulting career.
A recent MetLife/Civic Ventures study found that there are 9 million people between the ages of 44 and 70 who are already in encore careers. Of this group, most began thinking of an encore career at the age of 50, and took approximately 18 months to make the transition.
As the founder & president of Pennsylvania Capital Management, I've often advised clients to approach retirement with an open mind, and to remain active, both mentally and physically. Prospective retirees will likely find that they value working more than they realized -- or alternatively, they may find themselves bored, dissatisfied or without purpose in their lives once they retire for good.
The old tried-and-true plan of selling your home, buying a condo in Florida and spending your days playing golf or tennis is less appealing to today's more active baby boomer generation. An encore career may be the solution to remaining not only intellectually engaged, but to maintain an overall purpose for living that will provide additional income flow to support the rising costs around you.
To get started, evaluate what success looks like to you. Will your encore career involve starting a small business independently, or investing in a business with your child? Or, perhaps you could provide consulting services in your prior firm or industry of choice?
Devising plans on my clients' behalf can vary, depending on what they envision for themselves during retirement. If they simply wish to pursue a part-time job to make a few thousand dollars a month, the groundwork is fairly straightforward. Such additional income can allow them to continue funding their retirement plans, delay Social Security benefits for a more advantageous payout later, and pay off any remaining financial obligations, such as mortgages, HELOCs, or any outstanding family debt.
Many seeking an encore career have been dying to have a small business of their own. While this is a much more demanding endeavor, there are many seniors who have the necessary business acumen to be successful entrepreneurs. A number of local colleges have small business departments to provide assistance in formulating new business plans, accounting systems, and marketing strategies to help you address the most common challenges and questions in starting a new business.
For instance, what is your value proposition in the products or services you want to provide? What are the dangers, opportunities, and strengths inherent in starting the company of your dreams? How will you structure your product and service model? Will you bill hourly, on a monthly retainer, or are you a "pay-per-placement" type service that only receives compensation when a certain outcome is met?
It is important to fully research the competition before you start, and determine how much to charge for your products and services. Obviously, be careful to fully examine any non-compete agreements you may have signed with your previous employer.
One of the main points I stress to my clients in developing their encore career is that staying actively engaged will help you physically, mentally, and emotionally. It's not just good for your finances; it's good for your mental and physical health. The longer you can stay engaged in the world, the longer you'll live in it!