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Are You Ready for the New Realities of Retirement?

by Miranda Marquit

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).

new realities of retirementWe 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.

Bottom Line

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


Published or updated March 20, 2014.
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{ 6 comments… read them below or add one }

1 Money Reasons

Great article! I go the HSA route, and this has enabled me to save money from the reduced payment, while at the same time grow my money in my HSA! One caveat though is that you will be very tempted to skip going to the doctor as much…

As for the rest of the article, I agree 100%, I’m striving for a balanced lifestyle! There is a good chance I’m not going to be able (or want to for that matter) ski when I’m in my 70s… So why not experience a little bit of it now… :)

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2 LoveBeingRetired

Good points to help address the financial aspect of retirement but don’t forget the non-financial. In addition to paying your way, you want to have a retired life that you enjoy, that is satisfying, and that gets you out of bed each morning. It is important to plan ahead for what you will do after retirement to keep busy and fulfilled. Along the lines of your mini-retirement, try some things out before retiring and zero in on those that you are passionate about and will enjoy doing for the next 25-30 years!

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3 K.C.

Rosa and I retired at age 56 in 2009. We took those mini-retirements along the way. Rosa went back to school, full-time, at age 32, then started a new career. I quite my job at age 40 and started a business. I wrote and self-published a book at age 43. At age 45, Rosa quit working full-time for a number of years to care for her aging mother.

Most of the interests we pursue in retirement are those same interests that we developed during our working lives. Retirement has simply given us more time to devote to the things we already enjoyed doing, as well as the time to explore new interests.

We have a high deductible medical insurance plan but it does not qualify for HSA. We find we are much more prudent with our health care spending when it is coming out of our pockets. Without the stress of full-time work responsibilities, we are experiencing better health than we have known in fifteen years.

Most of the people with whom we associate are younger than we are.

One key to early retirement and the ability to take mini-retirements along the way was our house. We bought a modest house at age 32 and paid off the mortgage in 4 years later. This reduced our housing expense tremendously and gave us the financial flexibility to live different lives.

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4 20 and Engaged

We plan on retiring early (meaning not working in a traditional 9-5 job) so income diversity it’s huge on our list. We’re starting up the 401k/IRA route also. Hoping to get as financially fit as possible so our grandkids won’t have to worry about if grandma and grandpa can buy them that shiny new toy :)

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5 brokeprofessionals

It was refreshing to read a personal finance blog actually suggest it might be ok to live a little in the now and to have some fun while you are young and healthy. It is a tough balance, particularly when you add in how many financial responsibilities most of us have. Sometimes it seems like no matter how much money I earn (within reason) I will not be able to keep up with everything. Sometimes I am guilty of not living enough in the now and being too frugal. Interesting post.

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6 Nick Carraway

One of the reasons that such problems are coming up is simply that people are living longer than they used to. It used to be that a person would retire at 65 and likely die within a few years. Now we are a point where thanks to advances in medicine, people live much longer and hence need more money for retirement (or need to retire later).

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