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Creating a Retirement Backup Plan

John Lennon once said, Life is what happens while you are busy making other plans. Another popular saying goes, The best laid plans of men and mice go astray. Among people of faith there’s an even stronger saying – If you want to make God laugh – then tell him your plans.

What does any of this have to do with retirement? More than you think.

It’s close to an article of faith for most people that they will one day be able to retire, and retire in comfort. But retirement planning is like all other plans we make – they’re efforts we undertake with no certainty as to their outcome.

Creating a Retirement Backup Plan
Creating a Retirement Backup Plan
You’d never get that sense from most of the retirement propaganda that makes the rounds these days. Most of it makes retirement planning out to be a mathematical certainty – if only you follow all the proper steps over the next, say, 40 years, your retirement dreams will become a reality.

In many cases, maybe even most, the advice is actually quite solid. But will most people be able to pull that off? Somehow, I doubt it, at least not the majority of people.

In addition, there are a host of variables and imponderables that make retirement little more than a crap shoot. For example, there’s no way to know what future investment earnings will be, nor any reliable way to predict the effects of inflation on the cost of living. It’s also impossible to know if you’ll have the necessary career stability over a period of several decades that will enable you to build up a large enough investment portfolio.

If retirement is so uncertain for so many people, should we not even bother to plan for it?

Nope. Having no retirement plan guarantees a negative outcome. No, make your plans, but always have a retirement backup plan. That will not only have you ready for what ever may happen, but it also opens up the opportunity to create potentially two positive retirement outcomes. Two is better than one.

Why you may need a retirement backup plan

The whole concept of retirement is rapidly turning into a giant paradox. Though most people expect to have a comfortable retirement, most are not even close to being adequately prepared. How that will be bridged is a complete mystery. Meanwhile, public pensions are in distress, and the future viability of Social Security is an open question.

Last week, MarketWatch published an article on this subject, comparing the gathering retirement crisis to the financial meltdown a few years ago. In Our next big crisis will be a retirement crisis they reported the casual attitude the public has toward the crisis this way:

“But even though we know the overall picture doesn’t add up, somehow everyone keeps whistling and hoping for the best.”

Simply put, neither governments, corporate employers, nor individuals themselves are saving nearly enough money for retirement. Meanwhile health care costs are rising, as people live more years in retirement. How someone finds a comfortable, secure retirement in that mix of events is puzzling.

And that’s the point – and why we need to have a retirement backup plan. There is every reason to believe that retirement won’t quite turn out to be what we expect. So how do we craft an effective retirement backup plan?

The best retirement backup plan: your own business

Okay, I’m biased and I admit it. I’m self-employed, and I think it’s the best retirement backup plan you can have. Consider the advantages that self-employment can offer you in retirement:

  • There is no age barrier, the way there often is with jobs, and no mandatory retirement age
  • You can decide to work full-time or part-time
  • You can choose your work schedule – not every one can do nine-to-five, and part-time jobs often come with brutal schedules
  • If you have a home based business, like I do, you can make money without leaving home
  • Self-employment gives you the ability to “roll with the punches” of life
  • You can do work that isn’t physically demanding
  • You have control over the type of work that you do – you can do work that you like
  • You can continue to learn and grow in your career quite literally until the day you die

That last point isn’t always well appreciated. People often fail to recognize the importance of learning and growing until after they retire, and sense that something is missing. I liken it to the analogy of an airplane – when it fails to move forward, it crashes. I think that’s true of people too.

People typically think of retirement as the ultimate exit strategy from a lifetime of work. But work has important implications for our lives, even beyond financial considerations. In truth, work gives our lives meaning, purpose, connection to the world, and a sense of usefulness.

That makes self-employment the perfect retirement backup plan. That’s because you’re not just creating an extra income stream, but a lifestyle that could very well be better than anything you’ve ever known before.

The self-employed don’t retire

In my many years of working in both accounting and the mortgage business, I’ve noticed an undeniable fact: the self-employed don’t retire. They may change course, they may even downshift. And even if they sell their business, it’s usually just a matter of time before they start a new one. But they don’t retire. Why?

Because they don’t need to.

I’ve been on both sides of the work aisle – a full-time employee on a salary, and self-employed. I know that feeling of wanting to crash out of a job. But I also know the sense of continuity that comes with being in business for yourself. If you’re doing work that you like, there’s nothing to run away from.

If your financial resources are unlikely to provide you with a comfortable retirement, give strong consideration to starting your own business. These days, you don’t need capital to start and build a business – only skills and desire.

Don’t wait to begin working on a business idea until you are retired. You can start one now as a side business, which will give you plenty of time for you to perfect it and grow it. And between now and retirement, it can help you to payoff debts and to build an even bigger retirement portfolio.

Why you won’t be able to rely on the job market as a backup plan

Many people believe that they will be able to grab a job somewhere in the event that money is tight during retirement years. After all, it’s a common sight to see people over 60 manning the cash registers at McDonald’s. And the default greeter at Walmart job has virtually become a cliché. But finding a job – even part-time – is unlikely to be easy, and certainly not as easy as it is now.

Here’s why:

We’re moving into a future without jobs. Technology and off-shoring of jobs are pointing to a gradual decline in traditional jobs over the long haul. Think about common developments like online bill payment, ATMs, self-check out stands, and self-serve gas stations. All are designed specifically to eliminate jobs. It’s happening in nearly every job category you can think of, and it will only become more common in the future.

Your age will work against you. While you may be able to remain employed in your early 60s, it will become increasingly difficult to find jobs as you approach 70, and worse still after.

Your health may work against you. Not everyone is healthy enough to hold a formal job outside the home in their old age. This is particularly true in jobs that involve physical stress, such as standing for long periods of time.

Geography may be an issue. Many people retire to either low cost areas or to dedicated retirement communities. Jobs are often scarce in these areas. In fact, the low cost of living in a community is probably the result of an absence of jobs.

Recessions are job killers. The timing of a job search is a factor. During a robust economy, jobs may be fairly easy to find. But during recessions, hiring dries up. If your need for extra income happens during a recession – which is highly probable – there may be few jobs available, and very long lines for the ones that are.

Are you preparing your own retirement backup plan? Do you think it’s a good idea?

( Photo by Nicola Since 1972 )


2 Responses to Creating a Retirement Backup Plan

  1. We are working towards being able to have our side business be our main income stream. Our hope is that we can continue doing it into our later years. For all the reasons you mentioned, I think it’s important to get ahead of things and not depend on the gov’t our an outside employer for financial security as we get on in age.

  2. Hi Sherian – I’m with you completely. In my situation though, what used to be my side business has become my main business. I fully intend to carry it into my retirement years. One of the great things about having your own business, either as a main venture or a side business, is the flexibility. You can move the business into what ever line of work you feel lead to do, or need to do at the time. With a job, it’s usually and either/or arrangement, which will have you losing it in the event of a radical shift.

    I’m reminded of the Apostle Paul, who recommended that we lead quiet lives, work with our hands and not rely on others (1 Thessalonians 4:11). I see self-employment functioning that way in the retirement years. It allows you to maintain a sense of independence, even though you’re still dependent on earning money.

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