So You Are Retired – Now What?

Law Talk – By Denice A. Gierach
As published in the Business Ledger – September 21, 2009

Now that you have made the decision to retire (or the decision was made for you by the company that you worked for as a result of the economy), it is time to decide what to do with your life.  While you may want to take some well deserved time off, try to set out a time line for that “vacation” and a self imposed deadline to make the decisions for your future.  Remember that your prior job did not define you and may be just the stepping stone to something that you always wanted to do in your life, but were unable to do as a result of your obligations or other circumstances.

Many people may think that golf is “it”, but even the most avid golfers may decide that they need something more to do than golf.  If you are very active in your community in various charitable organizations, you may quickly fill your time in a very satisfying way.  If you are not that active, consider the old adage—“For better, for worse, but not for lunch.”   Your spouse, who may already be retired or not working, will be happy to help you make decisions that will be right for you to keep you active.

One thing that you may find satisfying is to become a consultant.  Many people who retire or a severed by their former employer continue their relationship with their former employer by becoming a consultant to that employer.  Your former employer probably severed the relationship in order to save costs and survive in this economy, understanding that your employer saves not only your gross wages, but also 30 – 40% in benefits.  That company does need to have the expertise that you provided filled in another way.  Either the company hires someone at a much lesser rate than you with a lot less experience or they hire a consultant to do the same job.

From your point of view, you can choose to work what hours you want, using your expertise and you already know the business and the issues that are involved.  You will receive compensation that will generally be a fair rate, based upon the number of hours worked.  You will have to pay taxes on that income yourself—income taxes, social security taxes and medicare taxes—all of which were previously done by your former employer.

Many times the company that you will be consulting for will require that you form an entity such as a limited liability company or a corporation, so that entity will be the consultant with your former employer.  This entity will protect your other assets from potential liability and also protects your former employer from any claim that you are still an employee, thereby cutting off any potential rights to the 30-40% benefits that the former company would be responsible for in the event that you were still an employee.

Once you have that entity created, if you find that you enjoy being a consultant, you can sell your entity’s services to other companies, as well.  You know the industry that you were in and may find that you will enjoy serving other companies, as well as your prior employer.  That being said, you need to make sure that you have not signed any previous noncompete agreements with your former employer, the language of which will preclude you from selling your talents to companies that compete with your former employer.  Even with those restrictions in place, it is a good idea to remain active in a trade association for the industry that your former company was in, as the restrictions will not last forever and you may find that there are other companies that are active in the trade association that may need your services.

You may be eligible to set up your own benefit packages for your new business that may be advantageous to you, both economically and from a tax perspective.  You should consult your attorney and your accountant to determine what entity is right for you and what benefits you may be eligible to have in your business.  These may range from healthcare reimbursement plans or normal health insurance to 40l(k) plans.  All of this will require some tax planning on your part with your attorney and accountant.

For those of you who think that life has just ended because you have lost your job—think again.  The best part of life may still be ahead—now you can build the job of your dreams.