In Preparing for Semi-Retirement I made the case that due to economic conditions, many people would be forced to accept a modified version of retirement, and that such a retirement should be fully anticipated and prepared for. I believe most people will do no better than some form of semi-retirement. Today I want to take that idea a step farther, and suggest that for many people, non-retirement is more than a remote possibility.
And I?m not just referring to people in the lower income ranges either. Economic conditions are changing rapidly, and no one has been more affected than people over 50. No matter how well prepared you might be up to that point, if your economic future is threatened in the last decade and a half of your working years all of your retirement assumptions will be subject to change.
Here?s a critical point: you won?t be exempt from this outcome just because you?re in your 20s or 30s now. One day you will be over 50 and you?ll be facing all of the problems older workers are dealing with now and maybe even a few more.
In fact, many younger people entirely dismiss challenges to the golden retirement assumption, preferring to place something close to religious faith in the rich retirement plan projections that are the staple of the financial world.
But let?s put the happy projections aside for a moment and consider the following from the real world:
- Companies are shedding their most expensive workers and people over 50 are often at the top of the income rung at the same time they represent the greatest liability to group health insurance plans. This trend shows no sign of reversing.
- The loss of a job by a person over 50 often means the end of a career, even a once lucrative one.
- The loss of a job often translates into the loss of health insurance, creating the possibility of a medical financial crisis. Private plans are too expensive for the unemployed and underemployed.
- The loss of a job not only means the end of contributions to retirement plans, but also the beginning of premature withdrawals. Money set aside to fund retirement is needed to survive in the present. A well-funded retirement plan can be drawn down in a lot less time than it took to build up.
- Two stock market crashes in a decade and a half have dashed the retirement plans of many workers. Older workers, closer to retirement, have less time to recover losses and are understandably shell shocked.
- Social Security and Medicare will probably be there in the future, but the nation?s budget problems are highly likely to cause major downgrades in the generosity of both programs. Full retirement ages have already been extended.
- Traditional defined-benefit pension plans have largely faded into the dustbin of history.
- Love ?em or hate ?em, the unions that once protected the lion?s share of middle class workers jobs and paychecks are practically non-existent outside the public sector.
I don?t think that it?s a stretch to say that the current crop of retirees are probably the last of the ?golden retirement class? stretching back to World War II. Getting to that hallowed status required the type of career and income stability that doesn?t exist in today?s economy, and especially for those in the critical years leading up to retirement age.
The Million Dollar Retirement Question
OK, enough bad news; I don?t think I?ve disclosed anything here that hasn?t been trumpeted elsewhere on the web, though it is instructive to assemble the different challenges in one place. What strategies can we implement to deal with disrupted or even canceled retirement plans?
- Get real about your retirement plan. Real life seldom works within the cozy boundaries of optimistic financial projections. Continue to save and fund your retirement, but view it as only one component of a larger plan and don?t assume it will?or even can?guarantee you anything.
- No matter what your age, live well beneath your means. Don?t assume that you?ll be able to downshift your lifestyle preferences after 20, 30 or 40 years of reckless abandon. This will not only help you to accumulate savings more rapidly, but it will also keep lifestyle inflation tendencies in check.
- Have money saved in both retirement plans and non-retirement plans. Uncle Sam?s budget problems are in the trillions – don?t ignore the possibility that plans which are currently tax sheltered might be fair game in the next budget crunch. You?ll also need money to deal with your own budget problems between now and retirement.
- Expect at least one more stock market crash before you retire. We?ve had two just since 2000 – any investment strategy that ignores this fact is beyond na?ve.
- Invest in stocks – sometimes. Rob Bennett has written over 100 articles on this site championing the importance of stock valuations and I couldn?t agree more. That means not being over-invested at market tops, but it also means buying in at market bottoms when everyone else is running scared. What?s a top and what?s a bottom? Take a look at the performance of the market over the past 20 years for some valuable clues, but don?t assume that stocks are an ?all weather? investment. The people who did over the past?15 or so years have been burned by that assumption?twice!
- Be prepared for a health insurance shock at any time. Private coverage can be hard to get and very expensive as you get older or have chronic health conditions. Look into group coverage from unconventional sources. Check out 20 Part-time Jobs With Health Insurance. One of them is Starbucks – and they have a store in nearly every neighborhood in America. That could be a viable option in a pinch.
- Plan to get on the Social Security and Medicare gravy trains as soon as possible. There?s a school of thought that has you delaying collecting benefits to maximize them, but you may need Social Security to cover less than expected income from other sources. You may also want to get your benefits in place so you’ll be protected (“grandfathered”) from potential benefit reductions in the not-to-distant future.
- Keep basic living costs as low as possible. Keep housing, cars, and most of all, debt, to a minimum. Flexibility is invaluable in facing crisis or diminished options, and you?ll sacrifice it if you have too many possessions, and even more so if they?re encumbered with debt.
- Plan on having some form of self-employment. Though you may be highly employable in your younger years, don?t assume that will be the case forever. At some point in your life, self-employment may be the only alternative to unemployment! Get a business started before you need it. I?m doing that right now with freelance blog writing. It?s the kind of business you can run as side venture, escalate it to something more if your career runs aground, and carry it right into retirement if need be. Try this or find something similar that will provide you with income options come what may. The stable employment, defined benefit pensions and generous Social Security income that the current group of retirees are enjoying are quickly disappearing – probably forever.
Have you considered the possibility that your retirement savings may not be as generous as hoped, or that instability in your employment may not allow you to amass enough funds for a golden retirement?or even any retirement at all? We sometimes say such things tongue-in-cheek, but what ?Plan B? provisions have you implemented or considered?
I told my now 24 year old only child that she needs to start looking at several options for when she retires as I doubt that social security will be around for MY retirement(lol).
And to be honest, I find it exciting looking for ways to support myself when I can no longer work. Rather and sit around and expect the government to take care of me, I am preparing NOW at age 52 and listening to other folks. Networking does work and it is so important during this recession.
When you have SEVERAL income sources set up, you can relax and not worry about not having an income if one source dries up.
My website: Surviving Unemployment!
Hi Angela–That’s outstanding advice to be giving to your daughter at such an early age. If she takes your advice to heart she’ll not only be financially prepared for her later years, she’ll also be mentally and emotionally ready.
I think that retirement–or what ever it will look like in a few years–will be VERY different from what people have now, but it won’t be either good or bad apart from the labels we put on it. Even if we don’t have the million dollar retirement plan–and most people won’t–we can still have a fulfilling life right up to our last breaths if we have income sources from other directions. It’s probably more of a mindset than anything else, and the early it’s accepted and prepared for, the easier it will be to blend into future plans.
The upside of this is that if you can develop those income streams early enough, you can semi-retire any time you want and not have to wait until 65 or some other specific age.
And keep in mind that a lot of folks are choosing not to retire(lol). And I think this is what keeps folks young. My grandmother who still lives in my island (Jamaica, West Indies) is 103 this December. She owned her own restaurant for years alongside my grandfather’s catering school. He did several years ago in his sleep after insisting on walking home when the city buses were on strike. He would not let his son come get him. That is the way I would love to go and hopefully he did not suffer any pain. I smile as I think of them BOTH. Sad to say I was not able to make it home for his funeral and I have not seen my grandma since my daughter was born 24 years ago when she came up to see us. She is not allowed to travel and I cannot afford to go see her 🙁 But she is my continuing “role model”…
I often think that the older folks find ways to live because that’s what they know–there was no way to make a living without working for it back in the “good old days”. If you came up in that world, you just soldier on and never think about not doing for yourself. They really are role models.
I started a little too late in life when it came to retirement investing and unfortunately, I believe I am going to be one of those who will have to find some sort of income stream in the form of a job well beyond retirement age. I have not lived beneath my means and a few investments over the years have gone sour. This is a lesson to all you younger people out there. You have to think of the future while you enjoying the present!
Hi Marjorie, thanks for sharing your story. Hopefully you’ve provided a benefit to others who might avoid being in the same position.
As I mentioned at the end of the post, take a shot at blog writing as one of those income sources. (Click on the link to read the post.) It’s never too late to do something different! You might just find a new calling late in life.
Hey, Kevin — When I saw the title for this posting, I immediately thought back the your semi-retirement article that you mentioned as well.
I absolutely agree that living beneath your means and keeping debt to a minimum is really what we should be doing as well. Most of us already have more than we need: our houses are larger than we need, more possessions than we use (and we keep buying more), and racking up more upon more credit card debt. As you said, you would figure that two stock market stumblings as well as increasing costs in fuel and other goods would cause people to take a more proactive approach in slimming down.
One thing I though that was funny about the most recent increase in gas prices is that when we saw the gas prices increase to this same amount a few years ago, people stopped buying SUVs and people generally traveled less. But, with his increase, that doesn’t seem to be the case — even though gas prices are close to what they were then. I guess the slow increase in gas prices allowed us to ease into it so that we didn’t notice as much.
To reiterate what you said, we need to start making adjustments now instead of expecting (hoping?) that someone somewhere will solve our problems for us!
Hi Chris–WOW–what a coincidence, I’ve noticed the same thing with the SUVs and such. I’ve been really surprised at the number of Hummers that have been popping up all over the place even as gas prices have risen. I don’t think that nearly everyone is doing this, but as it’s been explained elsewhere, an increase in gas from $2 to $4 doesn’t hit you nearly as hard if you’re making $200,000 a year, than it does if you make $50,000. At higher incomes, people don’t necessarily change their spending habits even with something as basic as gas prices rising.
With spending in general though, I think our optimism might also be an issue. You’ll only cut back so much if you think that tomorrow will always be better than today. It doesn’t matter if that’s the reality or not, but if you think it’s true you’ll make decisions based on it. We’re nothing if not optimistic in America, and probably most of the western world.
Great article Kevin. I guess it’s always like they say plan for the worst hope for the best. On the other hand I’ve have a retirement plan in place and I’m trying to save as much as I can but just like you said the likelihood of falling into another recession is pretty good and will happen again maybe even several times before I even retire. This is why I think it’s good to have a back up such as a side business or a part time job to cover the loose ends.
Hi Chris–Yes, “plan for the worst, but hope for the best” sums it all up. There’s optimism, and then there’s blind optimism and that’s not a contructive approach when it comes to retirement. We all need a back-up plan! If we never need to use it, great! But if we need to use it and have it in place we’re covered either way.
i have a friend who is my inspiration particularly in financial matters. he fails often but he never stops trying something else. he says he imagines he probably fails in 98% of the things he does or at least breaks even and the other 2% he really makes it big. big enough in order to more than pay for all the failures. i think too many people are afraid to fail. they shouldn’t be but i guess they all have their reasons as to why they retire on ‘just enough to get by.’
Hi Robert–Excellent point, just getting by is usually the “payoff” when we’re afraid to try because we’re afraid to fail. As the saying goes, if you’re not failing, you’re not trying hard enough.
We had a paradigm shift a couple of years ago in our retirement thought process. We will probably NOT retire in the traditional sense because there are so many things we will want to do. We still save and invest for the future but with the thought that we will probably work forever because we love what we do.
Hi Jennifer–You have a purpose in life, so retirement isn’t necessary. I think more people need to think that way. The notion of living in self-denial for 40-50 years so that you can retire to blessed nothingness in the last 15-20 is way overblown. You should always have a provision for reduced wages sailing into the traditional retirement years, but we should all have a useful purpose for as long as we’re fortunate to have one.