The First Step In Your Second Act

OCEAN CITY -- Whether embarking on a new career, earning an advanced degree or pursuing a combination of for-profit, nonprofit and leisure interests, Americans increasingly view retirement as a gateway to a second act. It's understandable: The average 65-year-old today can expect to live well into his or her 80s, so the time to pursue new careers could be extended by decades.

While having more time to pursue a second act is good news, it also means that you need to plan financially for your new path, taking into account that many unanticipated events will likely come along the way.

As you map a course and devise a strategic financial plan to get you there, there are four questions you should consider asking yourself (and your advisors). This week we will look at one of them.

How will my second act affect my Social Security payments?

If your next adventure could be a money-making enterprise, consider delaying taking Social Security payments, says Bill Hunter, director, Personal Retirement Solutions at Bank of America Merrill Lynch. The longer you wait to collect Social Security benefits, the larger your monthly check will be.

Additionally, the Social Security Administration caps how much you are allowed to earn if you start taking your benefits before reaching full retirement age, which is defined as 66 for most baby boomers. That means that if you haven't yet turned 66 and your income exceeds a certain limit (currently, $14,160), the SSA will trim $1 from your benefits for every $2 you earn over that amount.

That can add up. One solution is to wait until you reach full retirement age to start taking benefits, though married couples can take advantage of the fact that the penalty is based on individual earned income. So, as long as you're filing your taxes separately, if you retire early and your spouse doesn't, your spouse's earned income will not be factored into these benefit cuts.

If your next act doesn't include a paycheck, think about how you might earn some income on the side. For example, if you're planning on a renewed focus on volunteer work, you may also consider working part time to supplement your retirement income. "Working part time allows you to postpone not only collecting Social Security benefits but also tapping into your retirement savings, which will have a dramatic effect on how long those savings will last," Hunter says.

(A Merrill Lynch Wealth Management Advisor. She can be reached at 410-213-8520.)