This is the fifth and final strategy that I spelled out in What to Do if You Cannot Afford to Retire. We’ve already done a deeper dive with saving money no matter how old you are, selling your home if you need to, paying off debt, and continuing to work in retirement. So in this article will tie it all together with adjusting your retirement expectations.
What’s so important about retirement expectations? Answer: everything. Your expectations will determine whether or not you consider your retirement years to be successful, or whether you spend your last years disappointed and angry at the world for not giving you your fair share.
On a more practical level, adjusting your retirement expectations can help you to maximize your natural advantages, and minimize potential obstacles.
Start by Crunching Numbers – Can You Really Afford to Retire?
Many people have a retirement target date set in their minds. It may be 62, 65, 67 or 70. Each of those ages coincides with significant Social Security benefit points. But just because you’re eligible to get benefits doesn’t mean you’re ready to retire.
Retirement isn’t a date, but rather a favorable set of numbers. Before even thinking about retirement, you need to crunch those numbers and make sure they’ll work. I’ve seen too many people retire on little more than a $1,200 Social Security check. The outcome is always inevitable. There’s nothing magical about Social Security – it’s just another income source that kicks in when you’re somewhere north of 60.
This is where the serious number-crunching kicks in. Start by realistically estimating your Social Security benefits. You can use the online Social Security Benefits Estimator. It will give you your benefit at four ages – 62, 65, your full retirement age (between 66 and 67), and 70. The longer you delay getting benefits, the higher your benefit will be.
This is when you should determine when you will begin taking benefits. Once you start, there’s no changing your mind later.
Calculate any other income sources. This can be a retirement pension or expected withdrawals from retirement savings. Be conservative with those withdrawals. Figure no more than 4% or 5% per year – otherwise you may very well outlive your money.
Next calculate your expenses. And I mean all of your expenses. Housing, utilities, your cell phone, groceries, car expenses, pocket money, etc.
If you determine that your income is inadequate, you will need to continue working either full-time or part-time. If your expenses are too high, you may need to cut them. You may also need to do both. Make these changes before retirement.
Pay Close Attention to Healthcare Costs
In virtually every article I’ve ever read on early retirement, this topic is completely ignored. You can’t afford to do that. Healthcare will become even more important in the retirement years. Your estimates have to be realistic. You have to take into account not only health insurance, but also out-of-pocket costs.
Start with Medicare premiums, which begin when you turn 65. Under current levels, most people will pay $134 per month, or $268 per couple for 2018:
That’s incredibly cheap as health insurance goes these days. But you should also know that Medicare doesn’t pay anything close to all of you are healthcare expenses. For that reason, you will absolutely need to budget for a Medicare supplement. These are guaranteed issue policies, that often aren’t determined by your age or health condition. They will pay most of the costs that Medicare won’t.
As to the cost of this coverage, Medicare has a sample page that gives some numbers. I don’t know how reliable those are. I can say that my mom is paying over $300 per month for the supplement, while my aunt and uncle are paying over $400. If you’re single, you should budget $300-$500 per month for medical insurance, and $600-$800 for a couple.
According to my mom, she almost never has out-of-pocket costs having both Medicare and the supplement. Still, you may want to budget and extra thousand or two (or three) for out-of-pocket costs. A good way to handle this is to set up a health savings account (HSA), which will give you a tax deduction as well.
If you’re not budgeting adequately for healthcare costs, you’ll get an unpleasant surprise when retirement rolls around.
You Won’t Be Able to Retire on Social Security Alone – Get Over It!
You’ve heard this before, and I’ve certainly written it on this website, but Social Security is not a retirement plan. It’s a supplement for lost wages due to old age. View it as anything more than that, and you’ll be setting yourself up for disappointment.
I’m not being the bearer of bad news here, I’m just the messenger. The Social Security Administration reports the following facts for 2017:
- Nearly nine out of ten individuals age 65 and older receive Social Security benefits.
- Social Security benefits represent about 33% of the income of the elderly.
- Among elderly Social Security beneficiaries, 50% of married couples and 71% of unmarried persons receive 50% or more of their income from Social Security.
- Among elderly Social Security beneficiaries, 23% of married couples and about 43% of unmarried persons rely on Social Security for 90% or more of their income.
- The average Social Security benefit is $1,369 per month.
Let’s focus on the third point for a minute. 50% of married couples and 71% of unmarried persons receive 50% or more of their income from Social Security. The defining question: Where does the other 50% (or more) of their income come from?
If you don’t have a pension and/or sufficient retirement savings to make up the difference, you’ll have to make it up doing what you’ve been doing all of your life – working.
Social Security proper use. Once again, Social Security should be viewed as an income supplement. You aren’t home-free because you’re eligible. It just means you have an additional income source, that may reduce your dependence on earned income. But for most people, earned income dependence won’t be completely eliminated. You’ll almost certainly have to maintain a source of earned income for much of your retirement life.
Full Retirement is NOT a Necessity
Please don’t think the above information is a dark tale. The situation will only be as dark as you decide it will be. There’s nothing in holy writ that says that everyone needs to retire. As the numbers are shaping up, the reality is that most people can’t.
The best way to deal with that is to take a realistic approach. You may not be able to afford to fully retire, but you can certainly semi-retire.
That’s only a lousy arrangement if you absolutely hate the work that you do. But you can change that. I’m not talking about continuing to work in your lifelong career here. You certainly can and should do that if you actually like what you do. But if you don’t, you’re always free to make a change.
The fact that you will be collecting Social Security, and living on less money than during your working years, presents a golden opportunity to transition into work that you actually like. This can be a part-time job or a part-time business. Working 20 or 30 hours per week to earn the extra income you need may eliminate full retirement, but it will still give you plenty of time to do the things you like to do.
And if you like the work you’re doing, you may no longer sense any need to retire. As a person who likes the work that he does, I can attest that the desire to retire is pretty weak when you do.
You May Have to Let Go of the Suburban Lifestyle – And That’s OK
The issue that can make retirement planning so daunting is the attachment to the suburban lifestyle. That’s the single-family, detached house in the suburbs, the late model car in the driveway, the annual vacations to exotic destinations, and plenty of dinners out at nice restaurants.
The more you are attached to that lifestyle, the more difficult it will be to retire. You may have to let go of some of that in order to make even the most minimal retirement scenario work.
For example, for a single person, that might mean moving out of a house or apartment, and into a living arrangement with family or friends. That’s one advantage that a single retiree has. Your living arrangement can be completely flexible.
For a couple, that might mean selling a 3,000 square foot house in the suburbs, and moving into a 1,000 square foot apartment. Some people would find that “impossible”. But do you really need four bedrooms and a full finished basement for just two people?
As to owning a car, that could mean buying no more car than you can afford by paying cash. You may find that the monthly payment you maintained for a late model car throughout your working life is unsustainable in the retirement years. And if you’re either fully retired for semiretired, you may not need a late model car anyway.
It’s a matter of making trade-offs. The more you want the goodies in life, like travel and restaurant meals, the more you may need to chop out of your fixed living costs.
Make this decision before you retire, and start reorganizing your lifestyle expectations and circumstances now.
Retirement Isn’t a One Way Trip to the Land of Oz
One of the reasons why people are so preoccupied with retirement is the belief that it will bring you to a time of unmitigated bliss. Please abandon that notion. It has no place in reality.
If life isn’t Fantasyland during the working years, it won’t be when you retire either. You’ll still need income – probably some of it earned – and you’ll still have expenses. There will be unpleasant financial surprises, and the usual litany of non-financial challenges that affect us all simply as a result of being alive.
None of that will change when you retire. But if you go into retirement thinking otherwise, you’ll be disappointed and even miserable. Expect challenges, and plan to build flexibility into your lifestyle and finances.
Put another way, if you expect to have an income of $3,000 per month, and expenses of $2,975, you’re going to hit a wall. Probably sooner than later.
Make sure that you have the ability to earn additional income, cut expenses as necessary, and have extra savings. It’s called “margin”, and you’ll need plenty of it during the retirement years.
You’re Not a Failure If You Can’t Afford to Retire
To a great degree, our society is defining success and failure in life by a person’s ability to retire. If you’re able to afford a full retirement, congratulations. But if you can’t, don’t beat yourself up, and certainly don’t waste time being bitter.
Retirement never was a right, even though it’s often seemed to be since World War II. It’s actually a privilege, which not everyone can attain.
If you can’t, just plan to keep doing what you’ve always done. Before World War II, very few middle-class people retired. That’s part of the reason why so many lived with extended family. We often think of the three-generation household as some sort of novelty. Closer to the truth was that it was a necessity. Families banded together as a matter of survival. An older couple living with their children and grandchildren had lower living expenses, to fit better with their reduced incomes.
Unfortunately, multi-generational households are a rarity these days. We can only work with what we have. But we have to be willing to do at least that. If you maintain the expectation of an idealized retirement – and you don’t have it – you’ll have to let go of that vision.
And you’re certainly not a failure. Our lives aren’t all about what we have, but what we do. If you’re busy with productive and rewarding activities, you won’t have time to worry about what you don’t have. That’s the direction you need to take.
Let’s continue down that path a bit further…
Happiness Isn’t an Accident – Engage in Some Lifestyle Design
If you need a comfortable full-time retirement to be happy, and you don’t have it, what will you do with that?
I’d suggest that you invest some time and effort into creating a happy lifestyle. That’ll look different for everyone. You’ll have to figure out what it will look like for you, but it’s an effort well worth making.
Early in life, we’re busy trying to establish ourselves. There often isn’t time to design our lives. We have obligations, and we need to begin earning money to cover them. That often puts us in occupations that we’re not particularly well-suited for. As well, fear of the unknown often keeps us from pursuing our dreams.
Even if you’re not fully prepared for retirement, the retirement years are an outstanding time to resurrect those dreams. What was it you always wanted to do in your life? What kind of work did you envision for yourself? Where and how did you imagine yourself living?
Taking Inventory of Your Advantages
We often assume that you need a lot of money to find the answers to any of those questions. But I would argue that you need to grant yourself permission to pursue them more than anything else.
The benefit to doing it if you’re in retirement, or approaching it, is that you are at a natural transition phase in your life anyway. Instead of being miserable about what you don’t have, consider the advantages that you do/will have:
- You only need to take care of yourself, and your spouse if you’re married.
- You will have Social Security income.
- Presumably, you’ll have lower expenses.
- There will be no third party expectations, as is the case early in your career.
- Your only “obligation” will be to live your life and be happy.
If you saved up some money – even if it isn’t sufficient to retire – and you’ve gotten yourself out of debt, you have serious tangible advantages.
Armed with those advantages, you’re free to create a good life for yourself. That may not mean a life of blissful full retirement, but you will be fully capable of building the most balanced life you’ve ever known. We often over-estimate the challenges we face, but under-estimate our ability to overcome them.
It’s worth the effort. And it makes no sense to sulk and be miserable. One will lead you to a better place, while the other puts you in a dark pit. Only you can choose which course you’ll take.
Are you going to waste time sulking about the retirement that will never be? Or are you going to seize the day, use every advantage that you have, and at least build a better life than you have right now?