MONEY Second Career

Why Elite Colleges Are Targeting Baby Boomers for New Career Programs

Stanford college
Linda A. Cicero—Stanford News

Harvard and Stanford have launched programs for high-level execs seeking to change careers. Other universities are looking to jump in.

Stanford University welcomed 25 unusual students onto its campus this month—all in their 50s and 60s.

They are the inaugural fellows of a new program, the Distinguished Careers Institute (DCI), designed for people who want to follow more than one career path in their lifetimes and who want to go back to a college setting for more training. It is the forefront of a new movement for universities to look beyond typical 19-year-old undergraduates.

“People are finding that their initial careers might last 20 or 30 years, and then they need to prepare for new work that might last another couple decades,” says Dr.Philip Pizzo, the founder of the program and a pioneering oncologist who is a former dean of Stanford’s School of Medicine.

DCI is similar to a Harvard University’s Advanced Learning Initiative, launched in 2009. Both are one-year programs that focus on elite “C-suite” leaders looking to transform the second half of their careers, and both are expensive. DCI costs $60,000, not including housing; tuition and other costs of the Harvard program are similar.

Pizzo, who just turned 70, arguably is launching his own next act with the institute after a distinguished career in medicine that includes stints at the National Institutes of Health and Harvard University.

He is hoping to start something of a movement. Pizzo says he will start talking with other university leaders later this year about what Stanford is learning at DCI and encourage others to embrace its principles.

“We’re an elite program, but not elitist,” he says.

Another group, the non-profit San Francisco-based group’s “EncoreU” initiative is pushing universities to focus on older students making career changes, and it will convene a group of college presidents this fall to talk about how to make it happen.

LIFE ON CAMPUS

Jere Brooks King is a typical mid-career education fellow. She enrolled in Stanford’s DCI program after a 35-year career in sales and marketing roles at high technology companies, punctuated by early retirement from Cisco in 2011 at age 55. She turned 59 just before DCI’s kick-off this month.

King, who has served on the boards of several non-profits and industry associations, is using the DCI fellowship to expand her knowledge of board governance. She hopes to apply that expertise working with entrepreneurial start-ups focused on technology and social innovation.

“It’s really exciting to explore the latest thinking on campus around the connection between technology and social innovation,” she says. “I’m getting the chance to hear from venture capitalists interested in social innovation, and see what students are doing with their own ventures.”

DCI fellows pick an area of academic focus from nine areas, ranging from arts and humanities to engineering, healthcare or social sciences. They also participate in weekly discussion seminars and intergenerational mentoring and leadership sessions.

What kind of reaction are the DCI fellows getting from Stanford undergraduates?

“We think we fit right in, and we’ve been welcomed warmly,” says King. “But I’m sure we stand out, because we all look like someone’s parent—or grandparent.”

Read next: How to Jump from a Second Career to a Dream Encore Job

MONEY retirement planning

Here’s What You’re Really Going to Spend on Health Care in Retirement

150129_RET_HealthCare_1
Tim Robberts/Getty Images

These benchmarks will help you gauge your future medical spending and set the right savings goals.

For older Americans, figuring out how much you’ll need to save for future health care costs is the toughest part of retirement planning. The bills are not only daunting, but hard to predict. Now two recent studies from the Kaiser Family Foundation provide useful data that can serve as real-world benchmarks for your future health care expenses.

You already know Americans are living longer, and that health care spending is rising along with our life spans. To see how that increase varies over time, one Kaiser study, The Rising Cost of Living Longer, breaks down Medicare spending into its main components—such as hospitals, doctors and drugs—and measures how much Americans spend on these services at different ages.

Those between the ages of 65 and 69, who represent 26% of traditional Medicare beneficiaries, account for only 15% of program expenses in 2011, the most recent year for which data are available. (The study does not include Medicare Advantage plans). People between the ages of 70 and 79 comprise 32% of Medicare beneficiaries and 30% of spending.

Among the oldest Americans—those age 80 and above—the health care taxi meter runs up its largest charges, Kaiser found. These seniors represented 24% of Medicare beneficiaries but generated 33% of program expenses.

Below you can see the breakdown in spending by category for three different ages—70, 80 and 90. As Americans age, the demand for hospital, nursing, in-home care and hospice services climbs.

  • Age 70: Overall Medicare spending of $7,566, including $2,450 in Part A inpatient expenses, $2,054 in Part B doctors and services, $1,159 for hospital outpatient services, $1,191 for drugs (in both Part B and Part D drug plans) $349 for skilled nursing facilities, $279 for in-home care, and $84 for hospice.
  • Age 80: Overall Medicare spending of $11,618, including $3,962 in Part A inpatient expenses, $2,763 in Part B doctors and services, $1,440 for hospital outpatient services, $1,394 for drugs (in both Part B and Part D drug plans) $1,073 for skilled nursing facilities, $664 for in-home care, and $322 for hospice.
  • Age 90: Overall Medicare spending of $14,745, including $4,573 in Part A inpatient expenses, $2,640 in Part B doctors and services, $1,242 for hospital outpatient services, $1,344 for drugs (in both Part B and Part D drug plans) $2,583 for skilled nursing facilities, $1,233 for in-home care, and $1,132 for hospice.

Those are scary numbers, but the real issue for retirement planning is how much of that spending will be coming out of your own pocket. Another Kaiser study, How Much Is Enough, details the amounts older Americans spend on bills for health insurance premiums and uncovered health care expenses at different ages.

People between the ages of 65 and 74 spent $4,020 out of pocket on average in 2010 (he year analyzed by the study). Those between 75 and 84 spent $5,245, while those 85 and older spent $8,191—more than twice as much as younger seniors. On average, 42% of all out-of-pocket spending was for insurance premiums and 58% for uncovered health care expenses, including long-term term care (the biggest chunk, at 18%), medical providers, drugs and dental costs, which Medicare does not cover.

Will your retirement health care spending match these averages? Probably not. Medicare insurance plans differ, and no one can precisely forecast your future health or longevity. That said, even a rough guide can be a useful planning tool. So take a look at your own health care plan and see what coverage it provides for these common medical charges. Consider the likelihood for each type of expense, as well as the average Medicare costs by age, to come up with an estimate of the savings you might need to fund these costs.

To prepare for that spending now, take a look at the sources of your retirement income. If you have a health savings account, do everything you can not to touch it now but let its tax-advantaged balances accrue. It is an excellent vehicle for funding future medical expenses with no adverse tax consequences. Ditto for a Roth IRA, which lets your money grow tax free. For more tips on planning for retirement health care costs, check out MONEY’s stories here, here, and here.

Philip Moeller is an expert on retirement, aging, and health. His book, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” will be published in February by Simon & Schuster. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: Why Women Are Less Prepared Than Men for Retirement

MONEY retirement planning

The Right Way to Tap Income in Retirement

Ken and Jeanne Musolf
Jeanne Musolf would like to join husband Ken in retirement in three to six years. Peter Bohler

A couple working on their retirement plan needs help making the transition from saving to taking income. Here are three key steps to follow.

Over the past four decades, Ken Musolf, 63, has carefully plotted out an investment strategy for him and his wife, Jeanne, 59. His financial acumen has helped the couple accumulate $1.1 million in retirement funds.

Though Ken retired in 2012 after 35 years as a construction electrician, he and Jeanne have yet to tap that nest egg. He gets three pensions and Social Security, totaling $48,840 a year; and until December, she had been earning $100,000 as a department manager at a hospital. But they’ll need to start drawing down soon: Jeanne is scaling back her hours and job duties in January and plans to retire in three to six years.

Ken admits to being at a loss on this next phase: How do they transition from saving to taking income? With a portfolio across seven accounts that’s 66% stocks, 30% bonds, and 4% in cash, he says, “our quandary is that we have a basketful of investments and want to consolidate them in a sensible allocation that allows for growth and safety.”

Their only debt is a $43,000 home-equity loan and a $26,000 car loan. So the Musolfs have been living very comfortably on $8,500 a month, leaving them room to make extra debt payments, give $600 a month to charity, and splurge on their three grandkids. And Jeanne has been saving 20% of her pay in her 403(b). As she starts her new job, her salary will drop to $65,000.

The Musolfs can absorb that pay reduction and avoid dipping into their retirement funds by cutting back on overpayments on their mortgage and car loan, says Kay Allen of Aspen Wealth Management in Colleyville, Texas. The bigger challenge will be managing Jeanne’s retirement—when to quit and when to take Social Security—to minimize the impact on their portfolio. Depending on their choices, the couple could need to withdraw from $35,000 to $80,000 a year, Allen says. “The Musolfs are doing well,” she notes, “but it’s critical that they handle this transition carefully.”

The Advice

Reallocate to reduce risk: Ken can better manage their seven retirement accounts by consolidating them into four: one rollover IRA for each, Jeanne’s 403(b), and an IRA Jeanne inherited from her mother.

Next they should shift their allocation from a 66% stocks, 34% fixed-income mix to a 60%/40% mix. “This will enable them to better withstand market volatility,” says Allen. “At 60/40, they would have suffered a 22% loss during the Great Recession, requiring a 28% gain to catch up. With their current allocation, they’d have lost 30%, requiring a 43% gain. That is not something you want to experience in retirement!”

The mix she suggests (see illustration below) introduces shorter-term bonds for 12% of the portfolio via Vanguard Short Term Bond Index VANGUARD SHORT-TERM BOND INDEX INV VBISX 0.0948% and 2% emerging-markets stock through Vanguard Emerging Market Index ­VANGUARD EMERGING MARKETS STOCK IDX INV VEIEX -0.2303% for diversification. Allen also suggests always keeping a year’s living expenses in cash and four years’ in bonds to cushion against market turmoil.

150121_MAK_Musolf_ShieldAssets
Money

Tally up expenses: To determine an income strategy, the Musolfs needed to figure out their retirement budget. If she retires before Medicare kicks in at 65, Jeanne will have to pay for health insurance ($1,000 a month). Allen also wants the Musolfs to get long-term-care insurance ($500 a month), plus a Medigap policy for Ken once he turns 65 ($175 a month). Since the Musolfs want to travel more, Allen helped them come up with an annual vacation budget of $15,000. All told, the couple will have $146,000 in yearly inflation-adjusted expenses if Jeanne retires at 62, or $127,000 if she waits till 65.

Strategize withdrawals and Social Security together: Normally, retirees are advised to draw down at a rate of no more than 4% the first year, adjusting only for inflation annually, for the best chances of portfolio longevity. But if Jeanne retires at 62 and doesn’t take Social Security right away, the couple will need to replace $85,000 in income, for a whopping 7.6% withdrawal.

So if Jeanne does want to retire on the early end, Allen suggests she take a check from the government immediately. The couple would then initially have to draw 5.5% to get the $61,000 they’d need. But that’s okay, says Allen—three years later Jeanne qualifies for Medicare and won’t need health insurance, so their withdrawal rate will fall to 3.4%.

This way their money should last at least to their life expectancies, with some left for heirs. “Jeanne is con­cerned about retiring—she wants to know if she really can do it,” says Allen. “If they follow these steps, the answer will definitely be yes.”

Read more Retirement Money Makeovers:
Married 20-somethings With $135,000 in Debt
Freelancers With a Toddler, No Plan, and No Cash to Spare
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Read next: Why You Should Think Twice Before Choosing a Roth IRA or Roth 401(k)

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MONEY retirement planning

Why You Should Think Twice Before Choosing a Roth IRA or Roth 401(k)

two gold eggs
GP Kidd—Getty Images

Sure, Roth plans let your savings grow tax free. But if you're nearing retirement, a traditional pre-tax account may be the best choice.

Even assuming a Republican Congress doesn’t go along with the tax hikes President Obama has proposed, the mere fact that talk of higher taxes is in the air could very well make Roth IRAs and Roth 401(k)s even more popular than they already are. But is that necessarily a good thing?

For years, the conventional wisdom held that you were better off saving for retirement in a Roth IRA or Roth 401(k) rather than the traditional versions, provided you expect to face a higher tax rate in retirement than when you make the contribution. This makes sense because you would be paying tax at a lower rate upfront and avoiding a higher tax bill down the road when you withdraw your contribution and earnings tax-free.

Lately, however, it seems more people are challenging this view, and suggesting that you may still be better off in a Roth even if you end up in a lower tax rate when you withdraw the money in retirement. For example, T. Rowe Price released research last year showing not only that a Roth IRA or Roth 401(k) could generate more income in retirement than a traditional account for people who drop to a lower tax rate; it also showed that even older savers—people in their 50s and early 60s—who fall into a lower marginal tax rate in retirement could come out ahead with a Roth.

But while this can be true—and there may also be other good reasons to fund a Roth—it’s hardly a given. So if you think you may end up dropping into a lower marginal tax rate in retirement, you should be aware of a few important caveats before doing a Roth, especially if you’re nearing retirement age.

The Drag of Taxes

For example, according to T. Rowe Price’s analysis a 55-year-old in the 33% tax bracket today who retires at age 65 would receive 9% more retirement income by making a contribution to a Roth 401(k) or Roth IRA instead of a traditional account, even if he slipped into the 28% tax bracket upon retiring.

How is that possible? Let’s assume this 55-year-old has the choice of contributing $24,000 (the 2015 maximum for someone 50 or older) to a Roth 401(k) or a traditional 401(k). If he does the Roth and the $24,000 grows in a diversified mix of stocks and bonds at 7% a year, he would have $47,212 tax-free after 10 years.

If, on the other hand, he puts the $24,000 into a traditional 401(k) that returns 7% annually, he also would have $47,212 after 10 years. But assuming he drops to a 28% tax rate at retirement, he would owe $13,219 in taxes at withdrawal, leaving him with $33,993 after tax.

But the $24,000 he puts into the traditional 401(k) also gets him a tax deduction, which at a 33% pre-retirement tax rate effectively frees up $7,920 he can invest in a separate taxable account. If that account also earns 7% a year, after 10 years the 55-year-old would end up with $2,361 more in the traditional 401(k) plus the taxable account than he would with the Roth.

But wait. He must also pay taxes on gains in the taxable side account. Assuming he pays tax each year at a 33% rate before retiring, that would effectively reduce his after-tax return in the taxable account from 7% to roughly 4.7%, giving him a total after-tax balance in the traditional 401(k) plus side account of $694 less than the Roth.

In short, it’s the drag of taxes on the money invested in the taxable side account that allows the Roth to come out ahead. Or, to put it another way, the Roth wins out in this scenario because it effectively shelters more of your money from taxes than a traditional 401(k) plus the separate taxable account.

Check Your Time Horizon

But anyone, young or old, hoping to capitalize on this advantage by choosing a Roth 401(k) or Roth IRA over a traditional account needs to be aware of two things.

First, as this example shows, the advantage the Roth gets from this tax-drag effect is relatively small. It can take many years for the Roth to build a meaningful edge in cases where someone slips into a lower marginal tax rate in retirement. In the example above, the Roth account is ahead by only 1.5% after 10 years. And if that 55-year-old were to drop from a 33% tax rate to a 25% rate in retirement, the Roth account would actually still be behind by about 1.5% after 10 years.

So for the 55-year-old to get that extra 9% of retirement income, the T. Rowe Price analysis assumes that the contribution made at age 55 not only stays invested until retirement at 65, but is withdrawn gradually over the course of 30 years (and earns a 6% annual return during that time). Which means at least some of the funds must remain invested in the Roth as long as 40 years.

The second caveat is that to take full advantage of the Roth’s tax-shelter benefits, you must contribute the maximum allowed or something close to it—specifically, enough so that you would be unable to match the aftertax Roth contribution by putting the pretax equivalent into a traditional account.

For example, had the 55-year-old in the scenario above been investing, say, $10,000 in the Roth instead of the maximum $24,000, he could have simply invested the entire pretax equivalent of his Roth contribution ($14,925 in the 33% tax bracket) in the traditional account instead of splitting his money between the traditional account and the separate taxable account. Doing so would eliminate the tax drag of the taxable account as well as the Roth’s 9% income advantage. Indeed the Roth account would provide 7% less after-tax income over 30 years than the traditional 401(k).

The upshot: Unless you’re willing to make the maximum contribution to a Roth IRA or 401(k) or an amount approaching that limit, dropping into a lower tax bracket in retirement could do away with much, if not all, of the expected advantage of going with a Roth. (The Roth might still come out ahead over a very long time since you can avoid required minimum distributions).

Diversify, Tax-wise

There are plenty of compelling reasons to choose a Roth IRA or Roth 401(k), even if you’re unsure what tax rate you’ll face in retirement. For example, I’ve long been an advocate of “tax diversification.” By having money in both Roth and traditional accounts you can diversify your tax exposure, so not every cent of your retirement savings is taxed at whatever tax rate some future Congress sets on ordinary income.

And since (under current law, at least) there are no required distributions from a Roth IRA starting after age 70 ½, money in a Roth IRA can compound tax-free the rest of your life, after which you can pass it on as a tax-free legacy to your heirs. Roth IRA distributions also won’t trigger taxes on your Social Security benefits, as can sometimes happen with withdrawals from a regular IRA or 401(k).

Bottom line: Before doing a Roth IRA or Roth 401(k), take the time run a few scenarios on a calculator like those in RDR’s Retirement Toolbox using different pre- and post-retirement tax rates. Such an exercise is even more important if you think you might face a lower marginal tax rate in retirement, and absolutely crucial if you’re nearing retirement age.

But above all, don’t assume that just because Roth withdrawals can be tax-free that Roths are automatically the better deal.

[Note: This version has been revised to make it clear that the scenario with the hypothetical 55-year-old compares a Roth 401(k) vs. a traditional 401(k), not a traditional IRA.]

Walter Updegrave is the editor of RealDealRetirement.com. If you have a question on retirement or investing that you would like Walter to answer online, send it to him at walter@realdealretirement.com.

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MONEY retirement planning

How to Keep Risk From Draining Your Retirement Savings

Maurice Greer
Maurice Greer wants to be on the final sprint to retirement. Peter Bohler—Peter Bohler

An overly aggressive investing strategy threatened to derail Maurice Greer's retirement plans. Here's how he can get back on track without blowing his timeline.

Maurice Greer, 53, was a late starter in saving for retirement.

After a decade in the Air Force and eight years in retail—during which he’d saved $10,000 in a 401(k) but spent it when a sports injury threw him out of work—he de­cided in 2000 to start taking classes toward a certification in information technology. “I didn’t like the idea of getting old and having no money, so I had to catch up,” he says.

At age 40, newly minted with the tech credential, he moved to the Washington, D.C., area for an entry-level IT job with a Pentagon contractor. Thirteen years and five government jobs later, he earns $103,000 a year helping run the FBI’s computer systems. Along the way, he’s piled up $261,000 for retirement and $43,000 in the bank.

His aggressive investing style (80% in stocks) and savings plan (20% of pay) have brought him far. Now he wants to up the ante.

Greer, who has the government’s second-highest security clearance, has grown weary of the demands of the job, not to mention the polygraph tests and intrusive security checks the FBI requires. “My work is very stressful,” he says. “Life is short, and I want to enjoy it.” To travel more and pursue his photography passion, Greer wants to retire in seven to 10 years—the sooner the better.

In hopes of growing his money faster and making his dream a reality, Greer is considering buying individual stocks, perhaps big brand names like Coke and McDonald’s.

Investment adviser Riyad M. Said of TA Capital Management in Washington, D.C., doesn’t think that’s wise. With such a short time horizon, Greer should dial back (rather than crank up) the risk in his portfolio, Said says. “If he were 20 years from retirement, I’d say fine, stay aggressive,” he notes. “But when you’re seven to 10 years away, there’s a big risk that your portfolio could take a huge hit right when you want to take money out.”

The Advice

Reduce risk: Said suggests Greer turn down his equity exposure to 60% of his portfolio, with 40% in domestic and 20% in international funds. A quarter of Greer’s portfolio should go into fixed income, with 15% in U.S. bonds through MetWest Total Return METROPOLITAN WEST TOTAL RET BD M MWTRX -0.0903% and 10% international through SPDR Barclays International Treasury Bond ETF SPDR SERIES TRUST BARCLAYS INTL TREAS BD ETF BWX -0.3858% . Another 10% should go into alternatives—Said suggests Baron Real ­Estate Fund BARON REAL ESTATE RETAIL BREFX 0.5794% and ­Alerian MLP ALPS ETF TRUST ALERIAN MLP ETF AMLP -0.134% —and 5% in cash.

150121_MAK_PedalBack
Money

Aim for a target: Greer’s ex­penses are modest: With a mortgage payment of $900 on his condo and no other debt, he spends only about $2,700 a month. At that rate, he’ll need $800,000 to retire in seven years or $730,000 to retire in 10, assuming that he takes Social Security at 63. To reach these goals, he will need to save $44,000 or $24,000 per year, respectively, based on a 6% to 6.5% average return.

Invest tax-efficiently: A disciplined saver, Greer sets aside $20,000 a year in his 401(k)—on which he gets a $2,000 match—and $10,000 a year in a savings account.

Rather than sock away so much in the bank, he should take full ­advantage of 401(k) catch-up provisions for those aged 50-plus to contribute a total of $24,000 a year to that account. Then he should put the remaining $6,000 in a new brokerage account invested in an index fund or ETF of dividend-paying stocks (the tax consequences will be modest, and he can reinvest the dividends). One option: PowerShares S&P 500 Low Volatility ETF POWERSHARES ETF II S&P 500 LOW VOLATILITY PORT SPLV 0.788% . These steps will let him save enough to retire in 10 years and get him started toward an earlier quit date.

Greer currently overpays $425 a month on his mortgage; if he stops doing that, he can free up $5,100 more a year. Additionally, he will earn his bachelor’s degree in cybersecurity soon, which would qualify him for positions that could increase his salary by 30%. Making a job change and putting all his extra earnings in the dividend fund should allow him to save enough to retire in seven years—though a new position could be more stressful than his current one. “If that would increase my chances of retiring early,” Greer says, “the trade­off would be well worth it.”

Read more Retirement Money Makeovers:
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MONEY retirement planning

Why Women Are Less Prepared Than Men for Retirement

Women outpace men when it comes to saving, but they need to be more aggressive in their investing.

Part of me hates investment advice specifically geared towards women. I’ve looked at enough studies on sex differences—and the studies of the studies on sex differences—to know that making generalizations about human behavior based on sex chromosomes is bad science and that much of what we attribute to hardwired differences is probably culturally determined by the reinforcement of stereotype.

So I’m going to stick to the numbers to try and figure out if, as is usually portrayed, women are actually less prepared for retirement—and why. One helpful metric is the data collected from IRA plan administrators across the country by the Employment Benefit Research Institute (EBRI.) The study found that although men and women contribute almost the same to their IRAs on average—$3,995 for women and $4,023 for men in 2012—men wind up with much larger nest eggs over time. The average IRA balance for men in 2012, the latest year for which data is available, was $136,718 for men and only $75,140 for women.

And when it comes to 401(k)s, women are even more diligent savers than men, despite earning lower incomes on average. Data from Vanguard’s 2014 How America Saves study, a report on the 401(k) plans it administers, shows that women are more likely to enroll when sign up is voluntary, and at all salary levels they tend to contribute a higher percentage of their income to their plans. But among women earning higher salaries, their account balances lag those of their male counterparts.

It seems women are often falling short when it comes to the way they invest. At a recent conference on women and wealth, Sue Thompson, a managing director at Black Rock, cited results from their 2013 Global Investor Pulse survey that showed that only 26% of female respondents felt comfortable investing in the stock market compared to 44% of male respondents. Women are less likely to take on risk to increase returns, Thompson suggested. Considering women’s increased longevity, this caution can leave them unprepared for retirement.

Women historically have tended to outlive men by several years, and life expectancies are increasing. A man reaching age 65 today can expect to live, on average, until age 84.3 while a woman can expect to live until 86.6, according to the Social Security Administration. Better-educated people typically live longer than the averages. For upper-middle-class couples age 65 today, there’s a 43% chance that one or both will survive to at least age 95, according to the Society of Actuaries. And that surviving spouse is usually the woman.

To build the portfolio necessary to last through two or three decades of retirement, women should be putting more into stocks, not less, since equities offer the best shot at delivering inflation-beating growth. The goal is to learn to balance the risks and rewards of equities—and that’s something female professional money managers seem to excel at. Some surveys have shown that hedge fund managers who are women outperform their male counterparts because they don’t take on excessive risk. They also tend to trade less often; frequent trading has been shown to drag down performance, in part because of higher costs.

Given that the biggest risk facing women retirees is outliving their savings, they need to grow their investments as much as possible in the first few decades of savings. If it makes women uncomfortable to allocate the vast majority, if not all, of their portfolio to equities in those critical early years, they should remind themselves that even more so than men they have the benefit of a longer time horizon in which to ride out market ups and downs. And we should take inspiration from the female professional money managers in how to take calculated risks in order to reap the full benefits of higher returns.

Konigsberg is the author of The Truth About Grief, a contributor to the anthology Money Changes Everything, and a director at Arden Asset Management. The views expressed are solely her own.

Read next: How to Boost Returns When Interest Rates Totally Stink

MONEY Social Security

The Best Way to Claim Social Security After Losing a Spouse

Ask the Expert Retirement illustration
Robert A. Di Ieso, Jr.

Q. My husband recently passed away at age 65. I’ll be 62 in July, and I’m working full time. I went to the Social Security office and was told I could file for survivor benefits now, but would lose most of the income since my salary is about $37,000 a year. They told me to wait as long as possible to start collecting. My own Social Security benefits would be about $1,200 per month at 62, but since I’ll keep working, I will forfeit most of it. I don’t want to give up most of the benefits. But if there’s money I can collect until I turn 66, I’d like to get it. —Deanna

A. Please accept my condolences at the loss of your husband. I am so sorry. As for your Social Security situation, let me explain a few things that I hope will make your decision clearer.

First off, it’s true that the Earnings Test will reduce any benefits you receive before what’s called your Full Retirement Age (66 for you). However, these benefit reductions are only temporary—you do not forfeit this income. When you reach 66, any amounts lost by the Earnings Test will be restored to you in the form of higher benefit payments.

The real consequence of taking benefits “early”—before your FRA—is that the amount you receive will be reduced. There are different early reduction amounts for retirement benefits and widow’s benefits.

That said, you can file for a reduced retirement benefit at 62 and then switch to your widow’s benefit at 66, when it will reach its maximum value to you. This makes sense if you are sure that your widow’s benefit will always be larger than your own retirement benefit; more on that in moment.

One caveat: if you take your retirement benefits early, the restoration of Earnings Test reductions probably will be lost to you once you switch later to a widow’s benefit. But if the widow’s benefit is larger anyway, this should not bother you.

To find out more precisely what you’ll get in retirement benefits, set up an online account at Social Security—you’ll see the income you’ll receive at different claiming ages. To get the comparable values of your survivor’s benefit as a widow, however, you will need to get help from a Social Security representative.

Once you see those numbers, it could change your thinking. For example, what if your own retirement benefit is larger than your widow’s benefit? It could happen, especially if you defer claiming until age 70 and earn delayed retirement credits. In that scenario, you would do better to claim your widow’s benefit—and perhaps even take it early if you need the money. You can then switch to your retirement benefit at age 70.

These claiming choices can be very complicated. Economist Larry Kotlikoff, who is a friend and co-author of my new book on Social Security, developed a good software program, Maximize My Social Security ($40), which can take all your variables and plot your best claiming strategy. But I’m not trying to sell his software, believe me; there are other programs you can check out, which are mentioned here. Some are free, but paying a small fee for a comprehensive program may be worth it, when you consider the thousands of benefit dollars that are at stake.

Philip Moeller is an expert on retirement, aging, and health. His book, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” will be published in February by Simon & Schuster. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

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MONEY retirement planning

Money Makeover: Freelancers With a Toddler, No Plan, and No Cash to Spare

The Larsons
With 30-plus years to retirement, David and Ashlene Larson can afford to take more investing risk. Peter Bohler

Managing new businesses and a new baby left one young couple with little to save for retirement. Here's the advice they need to get their finances on track for the future.

David and Ashlene Larson know how important it is to save for retirement. The problem is they don’t have much cash to spare, as they are new parents—daughter Rosalie is 18 months—who are both starting new businesses. David, 33, took his sideline ­video-production company full-time in June, and Ashlene, 32, left her job at a PR firm in July to freelance.

The Larsons have more stable income than many self-employed workers, with $9,000 coming in monthly from two regular clients and twice that in a good month. But after payments for a mortgage, day care, car lease, and $25,000 in student loans—and after plowing some profits back into David’s growing business—they can put only $200 a month in Ashlene’s Roth IRA and $100 in a 529 savings plan for Rosalie’s college. Total savings rate: 3%. “It’s nerve-racking,” David says.

Meanwhile, they don’t know what to do with the $27,500 they’ve saved for retirement. Nor do they have any idea how to deploy the pile of savings bonds—worth $42,000 and earning 1.49%—that David’s grandparents gave him as a kid. “Our investments are all over the place,” says Ashlene.

Matt Morehead of Greenspring Wealth Management in Towson, Md., says that the Larsons’ overall allocation for retirement—73% stocks, 27% fixed income—is a tad conservative for their ages. But worse, Ashlene inadvertently has $15,000 in an old 401(k) invested in a 2025 target-date fund that will move to 50% bonds in 10 years, hampering its growth potential. Another concern: They have no cash in the bank. “The Larsons are stuck in the ‘foundation phase’ because they have debt and not enough emer­gency funds,” says Morehead. “They need to take care of those issues before sinking money into retirement.”

The Advice

Build in a shock absorber: Since they’re both self-employed, the Larsons should keep a reserve fund of at least nine months of expenses to prevent them from having to tap retirement funds if business slows, says Morehead. With basic costs of $6,000 a month, that’s $54,000.

David’s savings bonds are a good headstart, since these can be redeemed anytime without penalty—though taxes will drop their value to about $39,000. To make up the difference, the Larsons should redirect their $300 monthly retirement and college savings to a savings account. Plus, 40% of any monthly earnings over their base pay of $9,000 should go to the cash stash (another 35% to student loans, 25% to taxes).

Consolidate with the right target-date fund: David should open a Roth IRA for himself at a low-cost brokerage; Ashlene should move her accounts there too. Morehead suggests they go all in on Vanguard’s Target Retirement 2045 Fund time-stock symbol=VTIVX]. This bumps their stock stake to about 89% and gives them broad market exposure. Plus, the fund automatically rebalances until reaching a 50%/50% mix in 30 years. “This is a great way to invest for a young couple who don’t have time to monitor their portfolio,” Morehead says.

Beef up retirement savings: When their reserves are established, that 40% of additional income can go to their IRAs. Once they max out these regularly (each can put in $5,500 in 2015) or exceed the income limits ($193,000 modified AGI for couples filing jointly), Ashlene can open a SEP-IRA and David can start a 401(k). Only when they’re saving 15% of pay should they return to funding Rosalie’s 529. “You can always borrow for college,” says Morehead. “But you can’t borrow for retirement.”

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MONEY Second Career

Why the New Boomerang Workers Are Rehired Retirees

hand holding boomerang
Dragan Nikolic—iStock

How to go back to work in retirement where you had a full-time job.

You’ve no doubt heard about boomerang kids who return to their parents’ homes in their 20s (maybe you have one). But there’s a growing group of boomerangers who are typically in their 60s: retirees who return to work part-time or on a contract basis at the same employers where they formerly had full-time jobs.

If you’ll be looking for work during retirement, you might want to consider avoiding a job search and becoming one.

Employers That Rehire Their Retirees

A handful of employers have formal programs to rehire their retirees. The one at Aerospace Corp., which provides technical analysis and assessments for national security and commercial space programs, is called Retiree Casual. The company’s roughly 3,700 employees are mostly engineers, scientists and technicians, and Aerospace is glad to bring back some who’ve retired.

“With all the knowledge these people have, we get to call on them for their expertise,” says Charlotte Lazar-Morrison, vice president of human resources at Aerospace, which is based in El Secundo, Calif. “The casuals are part of our culture.”

The roughly 300 Aerospace casuals (love that term, don’t you?) can work up to 1,000 hours a year and don’t accrue any more benefits (the company’s retirees already get health insurance). Most earn the salary they did before, pro-rated to their part-time status, of course.

Why Aerospace Corp. Brings Back ‘Casuals’

The “casuals” program lets Aerospace management have a kind of just-in-time staffing system. “It allows us to us to keep people at the ready when we need them,” says Lazar-Morrison.

Ronald Thompson joined Aerospace’s casuals in 2002, after retiring at age 64. He’d worked for the company full-time since 1964, in program management, system engineering, system integration and test and operations support to the Department of Defense. “It’s a really good way to transition to retirement,” he says. “You need both the physical and mental stimulation to keep you young.”

Thompson worked up to the 1,000-hour limit for the first couple of years. Now that he’s in his mid-70s, he’s cutting back to about 10 hours a week, mostly mentoring younger Aerospace employees. I asked Thompson when he planned to stop working. “I guess my measure is when people won’t listen to me anymore,” he laughed. “That will happen.”

At MITRE Corporation, a not-for-profit that operates research and development centers sponsored by the federal government, about 400 of its 7,400 employees are in an optional, flexible “part-time-on-call” phased retirement program. These part-timers can withdraw money from MITRE’s retirement plan while they’re working.

Why Some Employers Don’t Have Rehiring Programs

Why don’t most employers do what Aerospace and MITRE do?

For one thing, it takes a considerable investment in resources to set up a program for former retirees. So the ones who can most afford it are those with skilled workforces who offer customers specialized knowledge.

For another, some employers are wary of getting trapped by complex labor and tax rules. For example, the Internal Revenue Service generally requires firms with retirement plans to delay rehiring retirees for at least six months after they’ve left.

But benefits experts believe boomeranging can make a lot of sense for retirees and the employers where they had worked full-time.

“I think this is really logical away to go back to work, so there is a lot of potential growth if it is made easy,” says Anna Rappaport, a half-century Fellow of the Society of Actuaries and head of her own firm, Anna Rappaport Consulting. “The legal issues need to be clarified and made easy.”

Outsourcing to Bring Retirees In

A growing number of companies are outsourcing the task to bring in some of their retirees. The independent consulting firm YourEncore, created by Procter & Gamble and Eli Lilly, acts as a matchmaker between corporations looking for experts to parachute in and handle pressing problems and skilled “unretirees” wanting an occasional challenge and part-time income. YourEncore has more than 8,000 experts in its network; 65 percent with advanced degrees.

Blue Cross/Blue Shield of America’s “Blue Bring Back” program lets managers request a retired former employee if there’s a project or temporary assignment requiring someone who knows the company’s culture and procedures. Kelly Outsourcing and Consulting Group manages the program.

Tim Driver, head of RetirementJobs.com, plans on getting into the business of making it easier for employers to re-employ their retirees. His research shows that this type of program works best for companies needing ready access to talent with unique, hard-to-find skills and flexible schedules, such as insurance claims adjusters. When a storm hits, Driver says, insurers need to quickly dispatch trained property-damage adjusters who are knowledgeable about their claims processes and policies.

“It’s an attractive approach for companies that want to have people accessible but not on their books [as full-time employees],” he says.

The option of participating in an formal outsourcing arrangement is likely to grow with the aging of the baby boom population and their embrace of Unretirement. In the meantime, this kind of work deal “will be mostly ad hoc,” says David Delong, president of the consulting firm Smart Workforce Strategies.

How to Get Yourself Retired in Retirement

How can you get a part-time gig with your former employer when you retire?

Delong recommends broaching the topic while you’re still on the job. (My dad always used to say that six months after you leave an employer, people start forgetting you; they’ve moved on and have figured out how to get along without you.)

“Raise the idea with the boss,” says Delong. “Don’t assume they wouldn’t be interested in having you back part-time. The worst they can do is say, ‘no.’”

Taking a job with your former employer in your Unretirement can be a win-win situation for you and your once-and-future boss. After all, you have the knowledge and the skills to do the job well and the employer knows who you are and what you can do.

I suspect this kind of boomerang arrangement will become a bigger slice of a boomer movement toward flexible, part-time work in retirement.

Chris Farrell is senior economics contributor for American Public Media’s Marketplace and author of the new book Unretirement: How Baby Boomers Are Changing the Way We Think About Work, Community, and The Good Life. He writes twice a month about the personal finance and entrepreneurial start-up implications of Unretirement, and the lessons people learn as they search for meaning and income. Send your queries to him at cfarrell@mpr.org or @cfarrellecon on Twitter.

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Why Obama’s Proposals Just Might Help Middle Class Retirement Security

150122_RET_ObamaHelpRet
U.S. President Barack Obama delivering the State of the Union address to a joint session of Congress at the Capitol in Washington, D.C., U.S., on Tuesday, Jan. 20, 2015. Andrew Harrer—Bloomberg via Getty Images

Congress probably won't pass an auto IRA, and Social Security is being ignored. But the retirement crisis is finally getting attention.

Remember Mitt Romney’s huge IRA? During the 2012 campaign, we learned that the governor managed to amass $20 million to $100 million in an individual retirement account, much more than anyone could accumulate under the contribution limit rules without some unusual investments and appreciation.

Romney’s IRA found its way, indirectly, into a broader set of retirement policy reforms unveiled in President Obama’s State of the Union proposals on Tuesday.

The president proposed scaling back the tax deductibility of mega-IRAs to help pay for other changes designed to bolster middle class retirement security. I found plenty to like in the proposals, with one big exception: the failure to endorse a bold plan to expand Social Security.

Yes, that is just another idea with no chance in this Congress, but Democrats should give it a strong embrace, especially in the wake of the House’s adoption of rules this month that could set the stage for cuts in disability benefits.

The administration signaled its general opposition to the House plan, but has not spelled out its own.

Instead, Obama listed proposals, starting with “auto-IRAs,” whereby employers with more than 10 employees who have no retirement plans of their own would be required to automatically enroll their workers in an IRA. Workers could opt out, but automatic features in 401(k) plans already have shown this kind of behavioral nudge will be a winner. The president also proposed tax credits to offset the start-up costs for businesses.

The auto-IRA would be a more full version of the “myRA” accounts already launched by the administration. Both are structured like Roth IRAs, accepting post-tax contributions that accumulate toward tax-free withdrawals in retirement. Both accounts take aim at a critical problem—the lack of retirement savings among low-income households.

The president wants to offset the costs of auto-IRAs by capping contributions to 401(k)s and IRAs. The cap would be determined using a formula tied to current interest rates; currently, it would kick in when balances hit $3.4 million. If rates rose, the cap would be somewhat lower—for example, $2.7 million if rates rose to historical norms.

The argument here is that IRAs were never meant for such large accumulations; the Government Accountability Office (GAO) looked into mega-IRAs after the 2012 election, and reported back to Congress that a small number of account holders had indeed amassed very large balances, “likely by investing in assets unavailable to most investors—initially valued very low and offering disproportionately high potential investment returns if successful.”

The report estimated that 37,000 Americans have IRAs with balances ranging from $3 million to $5 million; fewer than 10,000 had balances over $5 million.

Finally, the White House proposed opening employer retirement plans to more part-time workers. Currently, plan sponsors can exclude employees working fewer than 1,000 hours per year, no matter how long they have been with the company. The proposal would require sponsors to open their plans to workers who have been with them for at least 500 hours per year for three years.

These ideas might seem dead on arrival in the Republican-controlled Congress. But the White House proposals add momentum to a growing populist movement around the country to focus on middle class retirement security.

As noted here last week, Illinois just became the first state to implement an innovative automatic retirement savings plan similar to the auto-IRA, and more than half the states are considering similar ideas.

These savings programs are sensible ideas, but their impact will not be huge. That is because the households they target lack the resources to sock away enough money to generate accumulations that can make a real difference at retirement.

Expanding Social Security offers a more sure, and efficient, path to bolstering retirement security of lower-income households. If Obama wants to go down in the history books as a strong supporter of the middle class, he has got to start making the case for Social Security expansion—and time is getting short.

Read next: Why Illinois May Become a National Model for Retirement Saving

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