Retirement is an opportunity to write a new story and carve the next chapter of your life. Ask yourself:
- What is the dominant theme in your narrative?
- How can you continue to grow and develop?
- How do you want the next couple of decades of your life to unfold?
These are prominent questions, ones that encourage introspection and exploration into your goals, values, and priorities. Finding fulfillment in retirement is among the many challenges and opportunities when crafting your retirement plan.
For some, that meaning comes from using their time, talents, and resources to impact the community and others around them. One way to achieve that goal is an encore career.
What is an encore career, and could it be the right next step for you?
What’s an encore career?
An encore career is a second career path forged later in one’s life, often values or goal-based. Many people talk about an encore career in terms of a second vocation, elevating it from just a job to a defining cornerstone of your life.
Those who take this path tend to prioritize the social and emotional capital as opposed to the financial capital, which could make it a wonderful supplement to your retirement plan. An encore career doesn’t have to be related to your previous field, most are quite different.
Encore careers look different for everyone, but many tend to fall in the following sectors:
It allows people to engage in something they are passionate about and make an impact on the people and communities around them.
Finding the right next step for you is a highly personal decision that should take your passions and values into account. An encore career might mean getting on the board of a non-profit that you’ve been volunteering and donating to for years, opening up your dream business, or exploring an area you’ve always been interested in.
Now that you have a better idea of what an encore career could look like, let’s take a look at its potential effects on your retirement plan.
Extra income can improve your cash-flow.
With retirees expected to replace at least 80% of their pre-retirement income, any added savings can go a long way. It’s critical to develop a healthy savings plan leading up to retirement, but with Social Security only expected to replace 40% of your retirement income, bringing in some extra money certainly wouldn’t hurt.
An encore career can help supplement your income and support the expenses in your golden years. Even if all your savings and benefits cover your immediate needs, some extra cash could help you work toward additional savings goals like a dream vacation, gift budgets, and added flexibility and freedom with your spending.
Additionally, income from working in retirement can extend the life of your retirement accounts. With a regular paycheck, you might not need to withdraw as much from your 401(k) or IRA, giving those accounts even more time to appreciate. While you have to start taking RMDs by 72, an encore career can provide you with much-needed income until then.
Working longer might also translate into higher Social Security benefits. The earliest you can take Social Security is 62, but by enrolling that early, you can expect a permanent reduction in your monthly checks, about 25%. Income from an encore career could help you delay collecting benefits until at least your full retirement age, perhaps even later. By collecting benefits at 70, you accrue the maximum delayed retirement credits, yielding about a 32% increase in monthly benefits.
Working can enhance your retirement lifestyle.
Many retirees find it difficult to establish a new routine, and an encore career can help bring structure and focus to your daily life, which is a vital component of your lifestyle.
Many people think about their retirement lifestyle in big-picture terms, like moving closer to family, finally buying a boat, or taking the month-long trip to France. While these elements comprise components of your lifestyle, they certainly aren’t the most significant.
Your retirement lifestyle is found in the small moments—the way you structure your day, how you spend a regular Tuesday, the things you do to fill your time, how you find meaning and purpose. An encore career can do wonders for discovering that meaning in this next phase of your life.
It can give you somewhere to go, people to see, something to work toward, all elements that encompass a well-rounded and balanced life.
Possible drawbacks to consider.
While an encore career might sound like an ideal solution, there are a few important components to consider. Ask yourself some questions.
- Will your next career require training or additional schooling?
- If so, perhaps start looking into the qualifications before you retire to ensure it’s a viable option for you. Should you need particular certifications, look into the rules and requirements you need to meet. These could present additional costs, so factor that into your plan—you can even see if your employer will pay for relevant certifications or classes that could be helpful for your next move.
- How much money can you expect to make, and what impact will that amount have on your taxes?
- Your encore career is counted as earned income, which plays a significant role in your tax outlook. Your taxable income impacts your tax bracket, Social Security benefits, Medicare premiums, investments, and more. Be sure to work with your financial planner to be proactive about your tax plan.
- If you’re married, how does this career move fit into your retirement plan as a couple?
- Are you and your spouse on the same page? Will both of you pursue different careers? You and your spouse should be aligned on your goals and vision for retirement.
Our team helps you build your dream retirement.
The Goepper Burkhardt team is passionate about helping you plan your retirement. We love working with people to help them align their money with their values, so they spend more time on the people, places, and things that inspire and motivate them.
Are you interested to see how an encore career can enhance your vision for the future? Schedule a call with our team today. We are looking forward to serving you.