Second careers give retirement savings a second chance
September 09, 2010
Despite all the challenges faced by Americans approaching retirement age, your financial outlook in retirement doesn't have to be so grim. Not only can working longer be a powerful boost to your retirement finances, but if you approach it as a second career, it may also prove to be a satisfying experience.
Many Americans now have underfunded retirement savings because of a combination of factors. Years of low savings rates have put many retirement accounts behind schedule. A decade of poor stock market returns has reduced the value of retirement investments. The housing slump cut into another expected source of wealth for homeowners. Meanwhile, low bank rates have seriously eroded the earning power of more conservative savings. Finally, a weak job market has cut short many careers just as they were entering what were expected to be their peak earning years.
It's enough to make anyone near retirement age look back with a combination of anger and regret. As always though, looking forward is more constructive than looking back.
Longer Careers are the Ultimate Boost to Savings Rates
Specifically, looking forward means figuring out what you can do to improve your retirement prospects from here on out. For most people, the first answer is probably to improve household savings rates. Still, even the most disciplined of belt tightening can only do a limited amount of catching up in a few short years.
Say, for example, you have been making $50,000 and saving $5,000 a year. Through effort and sacrifice, you might be able to get that savings up to $10,000 -- at 20%, this would be well above the national average for savings rates. Still, if you only have a couple of years until retirement, the extra savings won't go far in funding your retirement expenses.
Suppose instead that you put off retirement for a few years. Let's say you had expected to draw out $40,000 a year in retirement. Instead, you put in a few more years of saving $10,000. Each year you work, your retirement nest egg grows by $10,000 plus the $40,000 you would have otherwise withdrawn. At $50,000, this effectively boosts your savings rate to 100%.
Second Careers Can Mean More Than Money
The reward for all this is more than a matter of math and money. While some people can't stand the prospect of staying on the job for a few extra years, those who take the route of starting a second career often find the experience to be enjoyable and satisfying.
A survey by Peter D. Hart Associates looked at people engaged in what are sometimes called "encore careers." This survey found that even though a third of the respondents had embarked on those careers for practical reasons, most were happy with their new careers. 84% reported a high level of satisfaction, and 94% felt they were making a difference.
According to a separate set of data from the MetLife Foundation, among the most appealing encore careers are advocating for a group or issue, working with children or youth, working to preserve the environment, and teaching.
So, if your retirement nest egg is looking a little puny, consider the financial and emotional benefits of working longer. You don't have to look at it as forced labor. Look at it as an opportunity to add to your store of life experiences, even as you add to your retirement account.