How to Fill a Retirement Income Gap With Career Value

Keeping Your Career Ready as a Reserve Asset Can Be Valuable

Your career skills can be useful, even in retirement. Thomas Barwick/GettyImages

If you’re like many people over 55, you are probably looking forward to realizing the gains from a well-diversified investment portfolio that affords you a steady flow of investment income to augment other retirement income sources.

However, history has proven time and again that just because a portfolio performed well most years, that does not mean it always will. For example, upon reviewing your 2014 year-end statements, you may have noticed that your well-diversified portfolio with 60 percent allocated in equities (including foreign investments) and 40 percent in bonds and cash, returned an average of less than five percent before fees.

Take away another one percent for average portfolio fees and you would have experienced a net return of less than four percent in 2014.  

For those of you already in retirement and taking out more than four percent to supplement your income needs, your year-end investment value would have been lower than what you started with at the beginning of the year. That’s enough to make anyone in their early years of retirement feel a bit anxious. Let’s draw that out further using an over-simplified example, but one that helps to illustrate an important point.

For this example, let’s assume you are fully retired and on January 1, 2014 your portfolio value was $1 million. You are taking out $4,000 each month to supplement your retirement income. That totals to $48,000 or a 4.8 percent distribution rate. Let’s further assume your 2014 rate of return on that $1 million portfolio was $38,000 due to a decline in the market value of some portion of your portfolio.

  Your 2014 ending balance was $990,000. That’s $10,000 less than where you started at the beginning of the year. But what if there was a way you could have added say $2,000 a month or $24,000 a year to your coffers over that same time period?

Using the above scenario your portfolio’s ending balance would have been $1,014,000.

You have no control over what the market is going to do and we all know that this year’s winners could easily be next year’s losers. When lower than anticipated returns occur, moving your equities around to those areas that produced higher returns in the past year is sheer folly. You don’t want to introduce that type of uncertainty (market timing) into your retirement or nearing retirement picture.

Rather, try controlling what you can control—the on-going value of your career equity. 

You have years of proven history demonstrating consistent results; you have invested throughout your working life in developing skills and experiences that others can benefit from; you likely have a ready-made network of contacts who are familiar with your hard and soft skills; you have flexibility and no need for benefits typically associated with traditional employment (vacations, insurance, etc.) These factors make you an attractive option to a forward-thinking company or organization needing some expertise in a given area without the long-term implications (to either of you!) of traditional employment. Additionally, these same skills help position you to do work that you find inspiring or rewarding beyond the income it contributes even (or especially) if you’d rather work for  yourself.

Consider the impact of earning $2,000 per month while doing something that inspires and energies you, keeps you active, allows you to contribute to a cause or interest area - all while capitalizing on skills you honed over years in the traditional workforce. At that rate, you could add $24,000 to your gross income that can go toward your household budget thereby reducing the negative impact of a low-return year on your portfolio balance.

When considering what you’d like to do, look to work that calls to you and is in line with your values. Recall those times where you felt you were doing work that didn’t feel like work to you.

Opportunities where you can use the skills you used during your traditional working years are great places to start. Were you a manager or leader of others? Were you most energized when helping someone else?

Did you find it exciting to share your skills or knowledge with others? Did you like mentoring or coaching? I see examples every day of people who are able to extend their career asset value by working on their terms in all sorts of areas.

I have a client who is a retired high school teacher who now teaches Spanish to adult learners for their personal enrichment and to managers at companies with a bi-lingual workforce. She averages around $100 per hour on a flexible schedule that allows her to enjoy her other retirement interests.  She also organizes small-group vacations to Spanish-speaking countries and she serves as the guide, translator and problem solver while in-country. She travels and stays for free on these trips, which allows her to not spend any of her retirement income on travel. I experienced one of these language immersion excursions and it was a great time. And seeing my client doing inspired work in her retirement was almost as gratifying to me as it is to her. 

The bottom line: don’t underestimate the value of your career asset. Even after retiring from traditional employment, you can rely on this asset class to consistently provide additional returns and contribute to your retirement income.

This article comes to us courtesy of Michael P. Haubrich, author of Career Asset Management: Getting Ahead, Staying Ahead, and Using your Head to Maximize your Career Value.