No matter who is doing the research, the conclusions always seem to be the same. Americans want to keep working. And many are—past the normal retirement age and often past the age at which they could retire in comfort.

Financial advisors are bearing witness to this trend, and it’s affecting their practices in mostly positive ways. First consider the research:

“It appears to me that the notion of a fixed retirement date or age is starting to unravel,” says Dan Galli, a principal of Daniel J. Galli & Associates. The normal triggers that say people should retire at age 591/2, 62, 65, for example, “seem to be less of a factor,” he says.

Others are witnessing that trend play out with their clients as well. “After nearly 25 years, I am seeing a growing trend towards working later in life,” says Ed Gjertsen II, a vice president at Mack Investment Securities. “I am seeing far fewer clients ‘hang it up’ and hit the couch.”

To be fair, advisors are not keeping exact track of the number of older clients who continue to work for pay, but they can give ballpark estimates. For instance, Karin Maloney Stifler, co-founder of Walden Wealth Partners, and Richard Salmen, the CEO of Northern Financial Advisors, both estimate that 20% of their older clients continue to work for compensation. And Dana Anspach, founder and CEO of Sensible Money, estimates that fewer than 5% of her clients who could retire comfortably continue to work either full or part time.

Why Work Longer?
Older clients are working for pay past normal retirement age for a variety of reasons. In some cases, it’s out of need—they need the income to support their lifestyle. In other cases, it’s out of want—they want to keep busy.

And in still other cases, the reasons are all jumbled together. Many Americans derive their sense of identity and purpose from their work. For some, doing nothing can be terrifying, no matter how much money they have.

In his practice, for instance, Salmen says some of his older clients who keep working do so because it adds “meaning” to their lives. “They enjoy the work,” he says.

Anspach has clients who are working longer for similar reasons. “We find that once clients know they don’t have to work, it frees up energy that causes them to feel better about the work they do,” she says. “When they do choose to keep working, it is for reasons that match their values, not because they feel like they have to. This makes a huge difference in their life.”

Besides satisfaction and meaning, some clients who work longer want to sleep through the night. “I believe the echoes of the financial crisis still linger and working later in life adds a little more stability and peace of mind,” says Gjertsen.

“Many of my clients are middle/upper middle class,” says Salmen. “They do not have so much money accumulated that they feel completely comfortable. The extra income allows them to feel better about spending money on themselves and enjoying life versus living more frugally during their early retirement years. When they keep working, they have more flexibility in the choices they make.”

Preserving financial capital is yet another reason clients choose to keep working. “The money helps the portfolio and it gives us time to get them to finally start tracking their expenses, plan an income strategy and also build out their personal life so that they truly enjoy retirement,” says Lisa A.K. Kirchenbauer, president of Omega Wealth Management.

Some clients, meanwhile, continue to work because they need something to do. “I just had a client who can retire but is working part time with her previous employer and part time at a clothing store,” says Gjertsen. “This keeps her busy, which is suited for her personality.”

And that’s not an uncommon reason. “Some have an inbred work ethic,” says Maloney Stifler. “They have a ‘die-with-their-boots-on’ mind set. They view leisure negatively.”

Clients also continue to work for practical reasons; they need employer-sponsored health care, for instance. “For the few who keep working, the primary reason they keep working is the need to feel productive,” Anspach says. “A secondary reason is to subsidize the cost of health care up until age 65. If an employer covers the majority of health-care costs, the total return on investment from working is far greater than the salary or hourly compensation received.”

And some clients work because they need income to support their lifestyles. “Some do not feel they have saved enough money to be able to retire and live their lifestyle,” says Frank St. Onge, an advisor with Total Financial Planning.

To be fair, St. Onge says, it’s not always the case that clients don’t have enough income to retire without working for pay. Rather, they haven’t crunched the numbers to learn whether they could afford to retire or they have ungrounded fears about not having enough money. “From my discussions, it would be clear they have not seriously looked at their retirement benefits such as pensions and Social Security,” he says. “In other cases, they have not or do not want to answer the question ‘How much is enough to have saved to retire?’ From my review of their investments and their sources of income for retirement, they have much more than they will ever need or could spend.”

Other clients have to keep working because they don’t have a retirement plan in place. “They haven’t defined the vision for the next chapter of their life—retirement,” says Maloney Stifler. “They are not ready to let go because they don’t know what’s on the other side of the decision.”

In other cases, clients choose to work for reasons that are hard to pin down. For instance, St. Onge says some of his clients received early buyout packages from their employer; they received what would have been their age 62 defined benefit pension at age 55.

Then, a few months after taking an early buyout package, they got an opportunity to work for another company at almost the same salary as what they were making before the package. “Now they are awash in money and are still working 10 years later,” he says. Are they working because they don’t have enough saved, or to stay busy, or some other reason? Yes, to all three variations.”

 

How Clients’ Working Affects Their Financial Plans
Financial advisors typically have to rejigger the financial plans of their older clients who keep working for pay. Among other things, Maloney Stifler facilitates goal setting and visioning for her client’s retirement life stage. “We discuss the glide path to or through retirement,” she says. “Whether it’s going to be a hard stop or a gradual transition from full time to part time. We also explore and introduce part time or volunteer opportunities if a client is reluctant to stop cold turkey.”

Advisors also have to readjust their client’s nest egg drawdown strategies. Clients who work for pay typically don’t have to start withdrawing money from their retirement accounts as once planned. “I have counseled many of them on the value of the income to take pressure off their investment portfolios,” says Salmen. “It is amazing how much of a difference even a little earned income can make.”

What’s more, financial advisors will often tell their older clients who continue to work for pay to keep saving for retirement, in a 401(k), a solo 401(k) or a Roth or traditional IRA. “If they are working during these periods, I suggest they contribute to the employer 401(k) if they get a match so they are not leaving free money on the table, use the employer’s Roth 401(k) and give up the tax savings and contribute directly to a Roth IRA if eligible or to a traditional IRA if they make too much,” says St. Onge. “If they use the traditional IRA and can convert the next day to a Roth because of the income limitation, they should do so and I try to keep their 401(k) money in the 401(k) so they can do this two-step IRA to Roth.”

In her practice, Anspach also has to advise her clients against doing Roth IRA conversions. “In many cases, the extra earned income means we are not able to convert as much to Roth IRAs at a lower tax rate,” she says. “Instead we often recommend they fund Roth IRAs or a Roth 401(k)—if that option is offered by the employer.”

For her part, Catherine Seeber, vice president at CAPTRUST, advises her older clients who continue to work against rolling their 401(k)s into IRAs too soon. “For those who choose to keep working, make sure you don’t roll over their retirement account. In some cases, if they still work and [are] contributing beyond age 70, they don’t have to take their RMD,” she says.

Besides building up the asset side of their net worth statement, financial advisors recommend that their clients work on the liability side as well and use earned income to pay down whatever debt they might have, credit cards, a mortgage, a home equity line of credit, auto loans, college loans and the like, before retiring. “Saving and paying down debt is key,” says Gjertsen. “I try to have those thinking of retiring live on their projected retirement budget for a couple of months just as a reality check. If they can reduce spending and reduce debt or add to savings, these years can provide a good boost to their resources.”

Financial advisors also recommend that their clients delay claiming Social Security to at least full retirement age, if not later. Doing so, among other things, increases the amount of their future monthly Social Security benefit and, for some, their spouse’s survivor’s benefit. Plus, doing so “may allow them to take money out of tax-deferred investments at a lower tax bracket without triggering a higher taxable amount on their Social Security,” says Salmen.

Advisors are also fond of highlighting the tax benefits of working longer as well. St. Onge says he encourages people to delay the start of Social Security. That way, there will be some years after they stop working and before they start Social Security to do Roth conversions at the lowest tax bracket, so that their required minimum distributions will not cause their Social Security, when it’s started, to be taxed at a higher rate.

In her practice, Maloney Stifler evaluates the optimal timing of charitable giving strategies for her older working-for-pay clients. She also analyzes the merits of pretax against after-tax savings as well as the tax benefits and other advantages of contributing to a health savings account. And she examines the timing of a client’s retirement to maximize any after-tax deferred compensation plan, which is often paid out six months after one officially retires.

Maloney Stifler helps other clients set up small businesses, LLCs for example, if they are independent contractors, and she reviews employment contracts carefully to maximize all compensation and minimize forfeited awards.

Financial advisors can also help older clients decide whether working is really better for them than volunteering. “You have to be careful,” says Seeber, who says that given the effect extra income has on benefits, volunteering might be a better bet than getting paid.

Besides the money part of the financial plan, financial advisors are also checking in on their older clients’ state of mind no matter whether they are working, semiretired or fully retired. “The life planning piece is always critical,” says Kirchenbauer. “Are our clients leading fulfilling retirement lives? If not, how can we get them back on purpose?”

Good For Business, Too
Financial advisors say this trend has been good for their own businesses. “[The advisor’s] business benefits by having happy clients who are living life on their terms,” says Salmen. “I believe that as more baby boomers reach retirement age that we will see a direct correlation between working longer and longer life spans. People need purpose, and when they sit around doing nothing they get old. The work they are doing in retirement is tapping into their accumulated skills and abilities, which improves their self-image.”

Others share that perspective. “All of this is a huge plus for business,” Galli says, “as the decision process involves knowledge of taxation, retirement accounts, investment strategies, Medicare and Social Security benefits and required minimum distributions.

“Just when someone thinks life is going to get simple … they discover it’s going to be more complicated, at least financially, than it has been and they need help. That’s a large value add for financial planners.”

Gjertsen says this working-longer-for-pay trend presents an opportunity for advisors to create better financial plans. “For us CFPs, there’s more opportunity for engagement in determining realistic retirement goals,” he says.

And clients who work longer for pay are also good for the advisors’ bottom lines, especially advisors who charge clients a fee based on assets under management. For them, there’s the potential to manage a larger pool of their client’s assets for a longer period of time.

“In general,” says Anspach, “I know the industry is concerned about a business model built around retirees because of a net outflow of assets. We do not see this as an issue. Most retirees will not spend down their wealth. Many older clients spend less than planned and often inherit assets, and in the majority of client cases the portfolio values are maintained and even grow in the decumulation phase.”

Plus, there’s the chance that advisors will enjoy a higher valuation on their practice in the event of a merger or acquisition. “While the underlying client demographics certainly matter, we place the most emphasis on the advisor’s actual revenue streams and the transferability of those streams,” says David Grau Sr., president and CEO at FP Transitions. “A meaningful shift in the longevity of client assets could result in a positive impact on practice growth rates, which would, in turn, favorably impact the valuation results and the marketability of the practice in an M&A setting.”

Not All Working Longer
To be sure, not all clients of financial advisors are working longer. In fact, Anspach says the majority of the clients at her firm are still focused on leaving work and a more traditional retirement.

“Overwhelmingly,” she says, “we find that once a client knows their retirement-income plan looks solid without any further work, they look for the first opportunity to retire in a way that fits their current employment situation. Once they know they can retire, most clients plan a retirement date which allows them to complete a current project, choose a year-end retirement date or pick a date structured around some other cyclical aspect of their industry.”

Still, Galli says, “it’s becoming more common for people to continue working, either in the primary occupation they have enjoyed or finding something new.”

And that means advisors will have to continue to find new ways to deal with this trend. “We in the financial planning profession need to start to change the narrative of what ‘retirement’ is,” says Gjertsen.