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. But is that a realistic expectation? As Baby Boomers are reaching retirement age, it’s becoming evident retirement is changing. Gone are the days of most pension plans (unless you are fortunate enough to work in the government sector and a few select private corporations). As the current generation comes into their prime working years and watches some Baby Boomers to push back their retirement dates, many people are realizing that a large percentage of the American workforce needs to make changes to their retirement plans in order to afford retirement and retire when they want, or need, to retire.
Will You Have to Push Back Your Retirement? Or Will Your Retire on Time?
One of the biggest fears that many Americans face is retirement. Will you have enough money to retire? That’s a question that many Americans are scared to answer, and the Great Recession has only made the retirement issue even more difficult.
An article on CNN Money reports on a Wells Fargo survey that makes it clear that many people are concerned about their retirement prospects. More than one-third of Americans think that they will be working until they turn 80. On top of that, 37 percent of those surveyed expected to work until they died or until they got too sick to work.
Backtracking to a Different Era
The idea of working until death, without a retirement, is one that many Americans find distasteful. However, the reality is that many workers ended up in just that same situation. Many of us look at 65 as the retirement age right now, but there was a time, not too long ago, that retirement wasn’t really an option for most people. Most people worked until they could no longer do so—and then they were usually to old and/or infirm to really enjoy life.
After a few decades of viewing retirement as a reward for years of hard work with a company (thanks in large part to pensions), things are changing again. Fewer companies now offer pensions, placing the emphasis on employees providing most of their retirement funds. And the work environment lends itself to more career changes rather than company loyalty. It appears that the “dream” of retirement has already passed on for many people.
The Wells Fargo survey seems to indicate that many Americans feel that we are returning to a situation that doesn’t allow for what we have come to view as a “traditional” retirement. Many respondents to the survey insist that saving for retirement is impossible if they also pay their bills, and that means that they will have to work well into their senior years.
What if You Don’t Want to Quit Working?
Of course, there is a segment of the population that isn’t interested in a more traditional retirement. There are some who want to keep working. Of course, they may not want to do the same job that earns their living right now. Instead, they look for ways to keep earning money, even later on.
I don’t know if I would like a retirement that involved just sitting around doing nothing. I’d want to keep doing something. (Honestly, it would probably be writing.) But that’s not the same thing as feeling as though you have to keep working at a soul-sucking job until you’re well into your 80s in order to make ends meet.
Really, it’s more about figuring out what you want your life to look like, rather than trying to guess what will happen in some sort of retirement. While I am saving money for the future, I don’t actively think about “retirement” per se. I’m more interested in figuring out how to live the lifestyle I want—one that doesn’t depend on me reaching a certain age.
How You Can Improve Your Chances of Retiring on Time
We know that relying on a 401k to provide for our long-term needs is insufficient for many people. 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, but for health and medical expenses. You get tax advantages, you can prepare for health costs, and the money is yours—instead of going to a health insurance company.
And there is another huge benefit of using Health Savings Accounts: you don’t have to use the amount you save right away, so you can let it grow over time. In effect, HSAs can be used for investments, so you can put money into your HSA and let it compound for years before you withdraw it, allowing you to pay for future medical bills, or use it like a retirement account (be sure to read up on the IRS rules to understand how to leverage this account for investing). This article covers HSA contribution limits and some strategies you can use to maximize your HSA.
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.
What do you think about retirement? What does it mean to you? And will you need to push it back?