An especially important area of education that advisors may want to focus on for clients on the cusp of retirement is income generating assets. This may start with advising clients about changes to laws concerning annuities, which may make those assets a favorable option for many.
Amidst all the talk about quiet quitting, quiet managing, and the great resignation, another trend may be brewing: the retirement boomerang. Individuals who retired from full time work only to realize the income they have in retirement may be re-entering the workforce, at least part time, “boomerang” back to their jobs. Retirees who don't plan for their retirement income may boomerang back into the workforce. Advisors can help prevent this by working on education ahead of a planned retirement date.
Boomerang employees, those who return after a period away, is a relatively new trend and one that is on the upswing as those who quit their jobs during the pandemic are returning in large numbers now. Some may even return to their original jobs. “Boomerang employment is a growing trend in general thanks to technology that helps people stay in contact over time, says Brian Swider, a management professor at the University of Florida and an expert on boomerang employees.”  The pandemic also increased the number of people retiring early. “The COVID-19 pandemic pushed millions of Americans into retirement earlier than they expected and they may have been unprepared. According to Bloomberg, as of Oct. 22, 2021, that number exceeded three million early retirees…. A lot of those early retirees are re-entering the workforce, and that number is rapidly growing. The latest numbers from U.S. Bureau of Labor Statistics showed an unretirement rate of 3.0% in February 2022.” A sharp rise in the consumer price index and inflation may also be cutting into those early retiree’s incomes. They may also find that their health care costs are significantly higher than expected. The good news for retirees is that more and more companies are creating programs to welcome back retirees at less than full time. “8% of the 463 companies surveyed by the Society for Human Resource Management in 2015 had [a formal returning retiree program] — but they are on the rise.” Whether the trend of boomerang retirees is here to stay, outliving savings is a constant worry for more than one third of investors.
Advisors can help prevent retirees from being forced to boomerang back to the workforce. Advisors may be working with clients to identify opportunities to find ways to increase the amount of retirement savings. They may also want to identify ways to increase the amount of investors’ knowledge about retirement income sources. For example, many GenX investors may misjudge how much of their income they can replace with social security. Some may think it’s closer to 15 or 20%, when in reality social security could replace almost 40% of a retiree’s income. Investors may also not know that they need to plan for 75 to 80% of their pre-retirement income as retirement income. Investors may think that number is closer to 40 or 50%, which may explain the boomerang retiree trend. Another stumbling block in retirement income education may be planning appropriately for healthcare costs in retirement. While long term care insurance may offset some portion of this amount, many may think that Medicare will cover all of their costs. Instead, the total amount a married couple may need for retirement could be closer to $285,000.
An especially important area of education that advisors may want to focus on for clients on the cusp of retirement is income generating assets. This may start with advising clients about changes to laws concerning annuities, which may make those assets a favorable option for many. Annuities can help provide predictable income for investors. It may also include ensuring clients have an appropriate understanding of dividend generating stocks. Those stocks sometimes have more fluctuation in their principal value, and investors may have been wary of them due to that. Those on the cusp of retirement may also want to learn about options like real estate investment trusts instead of rental or other real estate investments.
Some employers, like the State of Virginia, urge caution before rolling out the red carpet for these returning retirees.
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
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