As most would probably guess a good portion of my work with clients centers on retirement planning. From cash flow models to tax planning to insurance needs, so many of my discussions really boil down to the Big Question: “When can we get out of this rat race?” Usually, many folks walk in the door with a pre-defined age at which they think they should retire. Usually, this age hovers somewhere around 65 with some earlier and some later, depending on their life-long habits of saving vs. earning.
However, I believe this mindset is an anachronism from long ago days of pensions, gold watches and the IPhone 4. The days of life-long employment with a single company are unlikely to ever return and for this reason, I believe we need to re-think or even scrap the entire concept of “retirement” as we have come to know it.
In short, I believe we should no longer think of retirement as a binary option with a hard stop: working one day, retired the next. Instead, I believe people should consider a “phasing down” approach where they transition from the 40-50+ hours per week to multiple steps down of hours worked and effort as we age.
Why? Two reasons: I believe it’s better for balance sheets and potentially better for our minds.
Reason 1: The Numbers
Below I show the difference in expected retirement assets for a 50 year old married couple thinking about retirement. Here are the basic assumptions: they currently make about $200,000 / year, have just over $1,000,000 in investments, plan to work until they are 65 and expect to spend about $100,000 year then (inflation adjusted). They also will collect social security and expect to live until age 90.
BUT, what happens if they’re wrong about their retirement spending? What if they really spend in retirement like they do currently, at about $120,000 / year. Well as you would expect, the picture is not so pretty as shown in Scenario 2. Using these assumptions, they could run out of money by age 81!
What to do? Maybe consider working part time between the ages of 65 to 75. If the couple together could earn $50,000 / year for those 10 years- look what that does to the picture! They project to have about $500,000 in assets at age 90, even though they are spending much more than they thought. Think about it: $50,000 / year really boils down to each spouse earning about $500 / week (pre-tax) – a realistic target if you ask me.
So obviously, working part time for 10 years and not leaning so hard on a retirement portfolio pays BIG dividends (no pun intended) for retirement planning.
Reason 2: The State of Mind
I am obviously not a psychiatrist so I’m not trying to provide any medical advice. However, I am a big believer in the power of purpose and quite honestly, I’m not sure it’s so healthy to wake up day after day without any bigger purpose in mind. I’ve never retired so maybe I’m wrong but I’ve heard it is great fun at first but after a while, some people find there’s something missing. I believe what could be missing is a belief or progress toward something bigger than oneself. This is why I think it might make sense to actually plan NOW to be partially retired in the later years not only for the financial benefits but also for the potential mental benefits. Again, I’m not a doctor but I tend to think staying engaged and involved is a great way to keep the mind “exercised” and healthy.
Of course all this depends on health, which is a big wildcard. Obviously if someone is mentally or physically incapable of working then there really isn’t much of a choice. But our labor force has increasingly moved toward intellectual work vs. manual labor and along with that comes the potential to continue to use one’s mind to be productive. In addition, technology advancements continue unabated and it’s easier every day to stay connected, even if it’s from a Florida condo 10 hours / week!
Bottom Line: I still believe we should all save diligently for retirement and not expect to work as move toward age 65 and beyond. However, I do believe our working years should be used to lay the groundwork toward a new kind of “retirement” that isn’t so much rattled by the alarm clock but still provides a nice boost to the balance sheet and to the mind.