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?