Strategies for Jumping Back In
For retired investors anticipating a jump back into the workforce, Hammond has the following suggestions for getting finances in order before making the move:
• Don't overlook possible tax deductions. You may be able to deduct certain job-hunting expenses such as employment agency fees, resume preparation, phone calls and transportation if you're seeking employment. These expenses are generally deductible as miscellaneous if exceeding 2 percent of your current income.
• Consider stopping your Social Security payments. It doesn't take much to make your Social Security payments taxable. If you can pay back what you've already taken out, it may be in your best interest to stop taking Social Security until after you stop working permanently.
• As age 70½ approaches, don't forget you'll need to start taking required minimum distributions from your traditional IRA. You have until April 1 of the following year to start, but that means taking two taxed distributions in the first year.
• Be sure to stay well diversified. So close to retirement, it is critical to develop a well-diversified portfolio and reduce exposure to any single investment, such as the stock of your ex-employer.
• Periodically review all the categories of your insurance coverage. Verify that you're not paying too much for the wrong kind of coverage. This should include life, property, casualty and liability insurance.
Tips for Putting the Golden Years on Hold
For investors expecting to extend employment into their retirement years, Hammond suggests considering the following strategies for making the most of a delayed transition:
• Continue to invest money up to the company match in your company retirement plan. Don't turn your back on what is essentially free money.
• Attempt to be as debt free as possible before pulling the trigger on retirement. Start with unsecured credit card and/or auto loan debt first. Then work to get your mortgage paid off if you plan to stay in your current residence for at least another 10 years.
• Remember to support your emergency fund. Consider expanding your three to six-month emergency fund to cover at least two years of living expenses for retirement. An emergency fund can help you avoid dipping into dedicated retirement savings or taking on more debt if you're in a cash crunch.
• Don't shun annuities entirely. Create your own pension fund. An immediate annuity may provide a guaranteed income for life as well as a supplement to your overall retirement income, thereby creating a double pension stream between Social Security and income from the annuity.
About Stacy Hammond, Director, Charles Schwab & Co., Inc.
Stacy Hammond is currently helping lead Schwab's retirement initiative, which is focused on delivering a multi-channel approach that leverages products, solutions, marketing, and client experiences to meet the needs of investors transitioning to retirement.
Stacy has worked at Schwab for more than seven years in a number of different roles. Most recently she led the launch of Schwab's Gen X initiative, designed to ensure Schwab attracts, retains, and grows its population of younger investors, savers, and borrowers. She also developed and implemented the launch strategy for Schwab Bank's High Yield Investor Checking account.
Prior to joining Schwab, Stacy worked at the Advertising Council, a non-profit organization that develops public service advertising. Before the Advertising Council, she worked at the Kennedy Center for the Performing Arts in their children's education group.
Stacy earned her Master's of Business Administration degree in strategy from Yale University, and has an undergraduate degree in American Studies from Pomona College.