Most of us grew up believing that retirement was about amassing a big nest egg and then withdrawing 4% annually after we quit working forever, happily visiting grandchildren and living in communities of seniors. Of course, the recent recession has changed some of those assumptions. (I wonder if that was ever really the “dream” of retirement, but that’s the image many of us are familiar with).
We know that relying on a 401k to provide for our long-term needs is insufficient. We also realize — especially those who are younger than Baby Boomers — that Social Security may not provide the supplement that we are expecting. Additionally, we understand that health care costs are likely to rise, and that we will need more money for retirement than originally thought. One of the reasons for this that most seniors, according to a recent survey from Trilogy, are interested in rediscovering and reinventing themselves. This usually takes money. The problem is many people in retirement age don’t have a lot of savings. In fact, the average retirement savings leaves a lot to be desired.
In light of these realities, it is a good idea to start thinking about what you want from your retirement, and how you plan to finance it:
Cultivating Income Streams
Instead of relying on a nest egg that in term relies on the vagaries of the stock market, it might be a good idea to begin cultivating multiple income streams. Consider different passive income options that can help you develop income. By all means, continue contributing to a retirement account. But realize, too, that income diversity is important. Chance are that you will need to come up with some means of earning retirement income, and if you don’t want that to be a job, you will need to take time now to create income streams. This can include building a website, starting a side business, earning royalties from something you create, or getting involved in dividend investing.
Health Savings Accounts
One way you can prepare for higher health care costs is to consider a Health Savings Account. These aren’t for everyone, but if you are in good health now, and if you live a fairly healthy lifestyle, you can save money by getting a high deductible plan with a lower premium. Put the difference in a HSA, which is a lot like an IRA. You get tax advantages, you can prepare for health costs, and the money is yours — instead of going to a health insurance company.
What About Living Now?
Another reality is that we don’t even have to assume retirement as something that takes place sometime after we’re 50. Or 60. Or (heaven forbid) 70. There is a mini-retirement movement gathering steam that says you can take mini-retirements throughout a career, rather than just relying on a big pay-off at the end of your life.
You don’t even have to take mini-retirements to enjoy life now. Instead of scrimping and saving all the time to reach some magic number that will result in “freedom” at age 60, consider living a little now, while you are young enough to enjoy good health. Figure out what you like to do, and put some money into that. There may not be a later to enjoy it in if you wait too long. This doesn’t mean you completely neglect the future; it means that you plan to enjoy yourself now, and set things up so that your multiple income streams can help you as you age.
We have access to a number of options now. Technology has made it possible to create a lifestyle that works for you. Old “dreams” of retirement may be disappearing, and that may not be a bad thing. It gives you the freedom to create your own dream.
Photo credit: Alex E. Proimos