Is “retirement” becoming a one-word oxymoron?

A new Merrill Lynch/Age Wave study found that 47% of respondents age 50 or older who identified themselves as retired have worked or plan to work during their retirement years. What’s more, 72% of pre-retirees in that age range said that their ideal retirement will include some form of work.

“We’re seeing an increase in what people normally think of as retirement age,” says Ken Hoffman, managing director at HighTower’s HSW Advisors, an independent private wealth management boutique in New York. “It had been 62 to 65 but now it’s typically between 65 and 69.”

The unforgotten financial crisis plays a role in such extended working years, according to Hoffman. “Many people are still shell-shocked after what happened in late 2008 and early 2009,” he says. “That’s especially true for the people who panicked then, got out of stocks, and never got back in. They’ve locked in the losses they took then, with a permanent impairment to their investment capital.”

What’s more, people are living longer these days. “They may be afraid of outliving their money,” says Hoffman. “Even some people who are financially secure are worried. One solution is to work a few more years. ” The work might be full or part-time, depending on the individual’s health and interests.


The tendency to keep working longer affects planning for retirement income in several ways. “By working, people are able to defer Social Security and increase their benefits by 8% a year,” says Hoffman.

Historically, starting Social Security as early as possible has been common. If financial planning clients are now working longer and will do so in the future, thus starting Social Security later, the difference in ongoing retirement income can be enormous. Someone who could start benefits at age 66 with about $30,000 a year (or a reduced benefit of $22,500 at age 62) would receive around $40,000 a year by delaying until age 70, not counting cost-of-living adjustments. Delaying also can increase spousal benefits for married couples.

Moreover, seniors with some earned income are less dependent on portfolio withdrawals for retirement income. Therefore, a smaller drawdown—and a smaller portfolio—might be adequate for a comfortable retirement lifestyle, especially in the early years of retirement, when clients may be healthier and more likely to earn substantial income.

“By working longer and waiting to start portfolio withdrawals,” says Hoffman, “people can knock off a huge amount from their required retirement funding.”


Regardless of whether earned income can lead retirees to rely upon a smaller investment portfolio, the presence of earned income can impact retirement strategy. “Investors who are conservative or aggressive tend to be even more conservative or aggressive if they are working or expect to be working in retirement,” says Hoffman. “Conservative investors believe they can invest safely and still get the returns they need.” Such investors often favor investing in high-quality bonds and dividend-paying stocks.

“Aggressive investors, on the other hand, will prefer an even greater allocation to equities, if they’re counting on earned income in retirement,” says Hoffman. “They’ll hold different types of stocks, too: small-caps and mid-caps in addition to large-caps. These investors also are likely to hold more international equities, including some from emerging markets.” Over the course of a long retirement, aggressive investors may count on equities delivering their historic outperformance.

Donald Jay Korn

Donald Jay Korn is a New York-based financial writer who contributes to Financial Planning and On Wall Street.