It used to be that retirement was an attainable vision for just about everyone in the U-S-of-A.
Definition of Retirement: sit around the home, read the paper, play some golf, drive around town in a Cadillac, catch the early bird special at the local diner, watch some TV, go to bed, and do it all over the next day. Mix in an occasional RV or European vacation to take some photos and all was right in the world.
Retirees had a simple financial formula for achieving that dream:
- Hit age 65.
- Stop Working.
- Collect your pension check, replacing the majority of your annual income before retirement.
- Collect your Social Security benefits to fill in the rest.
- Rely on your retiree health benefits from your employer.
- Collect your medicare benefits to fill in the rest.
Those days are all but over. Why?
- Pensions are dead – our generation won’t get them, and if you are lucky enough to get one, good luck keeping most of it.
- Most individual investors fail miserably at investing. With 401K’s, any hopes we have of retiring are dependent on a.) you becoming a good, patient investor, b.) the market performing well (just look at the last decade’s miniscule returns if you aren’t scared yet).
- Social security benefits will not deliver what they have in the past (Social Security has historically replaced 40% of income). That is, if one of our political parties does not successfully push through the privatization of Social Security first, which would result in an impact similar to shifting pensions to 401K’s – that is, placing more burden on individual investors to get it right. Check out my comprehensive Social Security overview for more info.
- Retiree health benefits are about as rare as pensions will be for our generation – almost non-existent.
- For better or worse, medicare as it stands is under attack by Republicans. According to the non-partisan Congressional Budget Office, Ryan’s medicare altering proposal would shift more and more burden to individual retirees as it encourages a move to individuals buying health insurance through the private sector and is tied to general inflation vs. medical inflation. Whether Ryan’s plan passes or not, the U.S. has a budget problem that is going to encourage shifting more and more burden to retirees over the years. We can’t escape that.
Traditional Retirement is Dead
Scary stuff. If you don’t start hoarding a significant amount of your income (50%+), average double digit returns, and stay in impeccable health… retirement, in the traditional sense, is all but dead to you.
The system itself was designed when we were primarily a blue collar society and our bodies could not take working much beyond age 65. As we have shifted more and more towards and information based economy, perhaps we simply don’t need the 65 and quit formula. We may not have a choice.
You simply won’t have have the same entitlement programs to fall back on and private sector employers won’t foot your bill either. For better or worse, IT’S ALL ON YOU.
I’m not taking a political stance here. I’m trying to warn you that you will really have to look out for yourself starting yesterday and get a little bit lucky if you want to have a traditional retirement in today’s political and economic climate.
Is that such a bad thing?
The New Retirement
Perhaps my views will change as I age. I just can’t imagine a life centered around doing nothing.
It sounds like preparing for death.
When I’m 65, 70, and beyond, I want to live it up!
I can’t imagine NOT working in some capacity. Sure, at the age of 70, I don’t want to be slaving away in a factory line somewhere or on a computer (I almost said ‘pushing paper’) for 40 hours a week, but I do want to pursue creative interests, do meaningful work, and engage with others.
And if I have to take a part-time job to grab partial health insurance, so be it.
I think this will be the norm for our generation. And it might not be all that bad.
Shifting Our Mindset About Retirement
Retirement is all about situation and mindset.
I view it as a gradual or potentially even sudden move from following monetary pursuits to following personal objectives.
In other words, achieving enough financial freedom to do what you want in life.
There may be some peaks and valleys along the way that force you to seek a meaningless job part-time that offers health insurance or force you to take a full-time job in order to replace lost retirement savings.
Maybe retirement for you is becoming debt free and quitting your corporate 9-to-5 at age 40, working part-time at a Starbucks for health insurance, and gaining the bulk of your income from passion-related multiple income streams.
Does that sound so bad?
The New Retirement Formula
Your mileage may vary, but I think the new retirement will look something like this:
- Become debt free.
- Pursue interests that result in income.
- Supplement health insurance through income or part-time work with health benefits.
- Enjoy the nice added benefit of Social Security, Medicare, or other entitlements, but certainly don’t count on them.
Notice the lack of retirement age or ‘stop working’ from the equation.
What Steps Can you Take to Prepare for the New Retirement?
Maybe I’m wrong, but I just don’t see our society moving to a heavier benefit entitlement system and our current system isn’t even sufficient for our generation to realize a traditional retirement. As a result, the traditional retirement is dead. In order to be prepared for and embrace that:
- Stop worrying, it only causes inaction and a victim mentality. Start acting.
- Attack debt with a vengeance. The sooner you can become debt free, the sooner you will be able to achieve the new retirement.
- We’ve lived like many of our parents who have a cushy pension and who will get full Social Security payouts. We need to stop that. Keep your living expenses low. Consider downgrading or selling your vehicles and buying a tiny home instead of a larger one.
- Save like you never have before, particularly outside of your retirement accounts. Still put significant funds into your retirement accounts, but realize that those accounts are designed for the traditional retirement model. If you withdraw early, you will be penalized. The new retirement will require you to have a larger savings base outside of retirement accounts that you can withdraw from when needed.
- Start figuring out what your marketable hobbies and creative interests are and start pursuing them. Whether you achieve the new retirement or not, you should consider this.
- Become multi-skilled so that you can be flexible and recession proof.
Whether you believe that traditional retirement is dead or not, these actions will only improve your financial standing and freedom to pursue your interests in life.
Traditional & New Retirement Discussion:
- Which retirement – old or new – sounds more appealing to you?
- Do you believe that the traditional retirement system is dead?
- What is your new retirement vision?
- How are you planning on preparing for the new retirement?