They?re all kinds of ?alt? movements around. I googled the term alt-retirement and was surprised to find that it doesn?t exist. The closest references were to a couple of government programs under the title ?alternative retirement plan? that apparently exist for state governments, as well as FICA (the Social Security and Medicare tax). But it seems like it?s high time to roll out the alt-retirement movement.
No, it?s not likely that this will start out as some sort of grassroots movement with a bunch of ex-hippies holding hands, lighting candles and singing kumbaya. Our entire society is in such denial about the deterioration of retirement that it will be forced on us. But I for one don?t like having anything forced on myself. I?d much rather react to the reality at hand, and do the best I can in proactively managing the situation. That?s the best any of us can do.
That?s what alt-retirement is all about. Taking positive action to deal with a predictably negative result. In fact, I think of that as being positive thinking in its highest application. Positive thinking isn?t about whistling past the graveyard, and pretending everything is fine. It?s about recognizing reality, and preparing in a positive way.
Let?s try to flesh that out.
?I?m 65 years old and I only have $20,000 in savings ? how can I retire??
This is a question I frequently get ? in some form ? from readers, either in comments on the blog, or in private emails. I?d love to be able wave a wand and fix such a person’s situation. But there’s no wand, and I?m certainly no magician.
So here?s my blanket answer to anyone with this question: You?re not going to retire, and you need to make other arrangements.
Alt-retirement – this article – will be my standard answer to that question from this point forward.
I think most people know the answer before they even ask the question. But they?re hoping that I or someone else will have the elusive solution to their retirement dilemma.
I don?t. Nobody does.
If you?re in a situation that’s even remotely close to this, there?s a series of Alt-retirement realities that you need to get comfortable with?
Alt-Retirement Reality #1: You May Not Be Able to Retire – Ever
While many people have the expectation of full retirement at 65 or thereabouts, the numbers just don?t add up. Let?s look at what have been traditionally the ?three legs? of retirement since World War II.
Pensions. One of the unfortunate realities in the past 20 or 30 years is that traditional defined benefit pension plans are becoming increasingly rare. They?re not very generous in the private sector even if you have one. Most of the bankable pension plans are in government employment. Unless you work/worked in government, you won?t be able to rely on a pension.
Retirement savings. An article that appeared in Motley Fool in December reported that the average person between the ages of 55 and 64 has only about $135,000 saved. (This is consistent with other statistics I?ve seen.) When you?re at the doorstep of retirement, that?s little more than a large emergency fund.
What?s more, with interest rates in the 1% to 2% range, a nest egg that large isn?t going to produce much income. Sure, you can invest in stocks, but you may not have the stomach for that when you?re north of 65, and don?t have time to make up for the large losses that a market crash or a prolonged bear market can bring. This is why most people favor safe bank investments in retirement.
Social Security. The Social Security Administration reports that the average Social Security benefit is $1,369 per month as of June 2017. While this is a welcome income subsidy, particularly if you and your spouse each have a benefit, it?s hardly the kind of money you can retire on.
Whatever your perceptions of retirement might be, these are the realities for the average person.
Alt-Retirement Reality #2: Most People Can?t or Won?t Invest Their Way to Retirement
We?re surrounded by well-meaning financial gurus and media types extolling the virtues of relentlessly saving for retirement. Their advice is spot on. The only problem is that it doesn?t necessarily square with reality.
It?s one thing to squirrel away 20% or more of your income if you?re making $150,000 per year. But the median household income in the US is just $57,617 ? only about one third of that lofty income level.
The fact that the national number is a median is significant. Median means that 50% of the population earn less, and 50% earn more. It can be easily argued that people living in high cost areas can struggle to get by on even $70,000 or $80,000 per year.
Income statistics tend to be expense blind. A $100,000 income looks impressive, until you start considering necessary expenses. These include the plethora of costs associated with housing, health insurance and health care, maintaining one or more motor vehicles, and countless other expenses. It can be a stretch to save even 10% of your income for a faraway goal like retirement.
It?s small wonder that 69% of Americans have less than $1,000 in savings.
Sure, we can argue that people lack financial discipline, but I suspect it?s something more. Even if you?re making good money now, if you?ve gone through an extended period of unemployment, employment instability, or a cascade of major expenses, it?s not hard to adopt a what?s the use? attitude.
Yes, theoretically it?s likely the majority of people could invest their way to a comfortable retirement. But reality tends to go in a completely different direction from theory. For whatever reason, most people will either fail to do it adequately, or fail to do it at all.
Alt-Retirement Reality #3: Living Expenses Won?t Automatically Fall in Retirement
There?s a widespread belief that retirement brings about Living Expenses Lite. Once again, that?s possible in theory, but it doesn?t always play out in reality.
For most people, the expense patterns of the working years carry into retirement. There may be small reductions, due to the disappearance of work-related expenses like commuting, but the big expenses tend to stay put. For example, if you stay in the same house, your expenses won’t decline. It will happen if you pay off your mortgage, but that can be partially offset by rising property taxes, homeowner?s insurance, utilities and repairs and maintenance. It?s also worth noting that as you get older, you?ll likely become increasingly reliant on paid service providers to maintain your home.
The bulk of auto expenses are also likely to remain the same. You may use less gasoline in commuting to work, but you might make it up with recreational trips. And while driving a ?beater? might be acceptable when you?re younger, you?ll prefer the reliability of a late model car as you get older.
Then there?s healthcare expenses. If anything, they?ll increase once you move into retirement. This will be especially acute if you?ve been on an employer subsidized health insurance plan in your working years. That $400 per month employee contribution can easily double when you?re on Medicare and a Medicare supplement. And unfortunately, with advancing age, comes increased health-related issues.
If your expenses decline in retirement, it?s probably by nickels and dimes. This is why financial planners often recommend that you plan for retirement living expenses equal to about 80% of pre-retirement levels. Your expenses may fall some, but it?s unlikely to be a wholesale drop.
Then there?s inflation. It?s official government policy, so we should fully expect it to continue going forward.
Alt-Retirement Reality #4: You?re Probably Going to Need to Keep Working
This gets to the heart of Alt-retirement. Most people will need to retain some sort of earned income well past age 65.
According to the Pew Research Center the number of people 65 and older still in the workforce has increased from 12.8% in 2000, to 18.8% in 2016. That?s a nearly 50% increase in the number of seniors working. And it occurred many years into an economic expansion.
My guess is that the percentage will increase in the next recession.
What?s more, nearly two-thirds of those 65 and older who are employed work full-time. In fact, seniors are the only age group that has increased its labor participation rate since 2000. Virtually every other age group has fallen, given that the national labor participation rate has been declining since the 1990s.
Clearly something is changing. This appears to be part of a long-term trend. If we connect the dots, Alt-retirement realities 1, 2 and 3 are almost certainly the reason behind it.
It?s now hard to go into any big box retailer and not see multiple seniors at work. It?s likely that many did retire at 62, 65 or 67. But after a couple of years, reality sunk in that retirement wasn?t working.
This is creating something of a retirement boomerang effect. People retire on little more than luck and a prayer, and are forced back into the workforce by the cold, biting wind of economic reality.
A proactive Alt-retirement strategy will be the best retirement plan of all for most people. That doesn?t mean you have to continue working at a job you hate. Alt-retirement is all about downshifting into preferred work styles. That is, creating a career that blends comfortably with your life, and offers rewarding work.
Alt-Retirement Reality #5: You May Have to Make Uncomfortable Lifestyle Choices
One of the biggest retirement hurdles for most people is the perceived necessity of maintaining the current standard of living. People want to retire, but they want to do it with a nice home in the suburbs, one or more late model cars, regular dinners at nice restaurants, extensive travel, and generous gifts to children and grandchildren.
The top 5% of households might be able to do that ? and maybe some in the top 10%. Unless you?re in that privileged group, you?re going to have to make trade-offs. Get used to it. For the vast majority of people, retirement and a comfortable suburban lifestyle won’t be compatible.
Some of those uncomfortable lifestyle choices might involve:
- Selling your house, and moving into a less expensive one, or even into a rental situation.
- Going from two cars down to one, or exchanging a late model car for an older used-car.
Reducing major expenses may prove to be a game-changer. If your income won?t support your traditional lifestyle, then it may be time to downshift that as well.
Upshot: It?s amazing what we can get comfortable with when we embrace change. The change itself is usually the most traumatic part. After that, it?s all about settling into a new routine.
The retirement years should be when life becomes more about experiences, and less about possessions and living standards.
Alt-Retirement Reality #6: You Need to Adopt a Flexible Way of Thinking
Embracing reality is never easy, particularly in a culture where reality is increasingly considered optional. But embrace that we must.
Part and parcel of that shift is adopting a flexible way of thinking. We have to embrace the idea of a ?working? retirement, living a less traditional lifestyle, and finding ways to reduce expenses. All that is possible ? or at least easier ? when you change the way you think.
For example, if income will be limited, it might be necessary to get into a shared living situation. It?s the kind of thing that young people do all the time. For a single person, this may be the best option, given that housing is so expensive in most markets. Couples may need to consider taking in a boarder, which could be a friend or an extended family member.
Shared transportation needs to be on the table as well. A couple may need to go down to one car, rather than two. Fortunately, this is easier to do than ever in the age of ride-sharing services like Uber.
How Flexible Thinking Enabled Me to Cut Car Repair Bills by Thousands of Dollars
There are other expense-cutting strategies to consider. For example car repairs. I hate paying for them. I?ll bet you do too. They?re one of the major reasons why so many people are mortally afraid of owning an older car. But a few years ago I embarked on a crusade to find a cheaper way to repair our cars.
I hit pay dirt. By using a combination of free services, a ?backyard mechanic? and buying my own parts, I?ve been able to reduce $1,000 car repairs down to $400 or $500.
This is just one example of how you can lower a major expense by adopting a flexible way of thinking. I?m not a car guy in any way, so doing my own repairs was out. But I found a happy medium that?s saved us thousand dollars over the past several years.
You can do this with any number of expenses. Again, most of the what it requires is flexible thinking. Embrace it, and you?ll be amazed what you can accomplish.
Alt-Retirement Reality #7: You Can?t Go It Alone
Perhaps the biggest Achilles heel for most people is adherence to America?s patented go it alone lifestyle. We want to be free to be lone wolves, to live without being dependent on anyone else.
That tends to work much better when you?re riding high in life. But when you?re not, it?s completely counterproductive. We?ve all heard stories about how ?back in the good, old days?, people helped each other. Family and friends stepped up during times of personal emergency, and the gesture was always returned.
That concept still generates warm fuzzy feelings in the 21st century. But most people are loathe to embrace it. Sure, we all like help in our own times of need. But it’s reciprocating where the whole construct falls apart. We don?t want to be obligated to anyone.
That?s toxic as you move into the retirement years. In fact, for each of us, as we move toward the end of life, we will become involuntarily dependent on other people. Why not embrace the concept before it becomes entirely necessary?
Part of the reason why the cost of living so high today is because of the emphasis on individuality. We all perceive the need to have a place of our own, a car of our own, etc. But that?s an expensive way to live. One man/one car may be preferred, but is prohibitively expensive. Especially when income is limited.
It may be necessary to develop shared situations to cut costs. This can include housing, transportation, and any other possession/expense we can imagine. It?s what humanity has been doing during difficult times for thousands of years.
It Can Also Work Wonders on the Income Side
Despite laws against age discrimination, it?s a common practice. By 65 you may find job opportunities extremely limited. Knowing the right people will be more important than ever. For example, it may be important to become friendly with a number of small business owners. They may provide much-needed employment opportunities.
If you?re looking to start a business, you’ll need some form of professional network, to help you launch the business and sustain it. I certainly found that to be true with blogging. Meanwhile, I?m constantly growing my writing business by reaching out to others. You can do it too.
I was listening to radio Bible teacher Steve Brown on the radio yesterday, and he said something that I think applies to all of life: Never underestimate the weakness of your adversary.
?Adversary? doesn?t mean your enemy. It?s anyone who you?re having a potentially uncomfortable exchange with. This often happens when we?re reaching out for help. When we do, we should always keep in mind that the other party also has needs. If you can work out a way to address one another?s needs, you have the common ground necessary to build a productive relationship.
Most of us attempt to live within very insulated worlds. This is completely counterproductive in a time of need. It also creates undue stress. What I’ve found in my own life is that when you reach out to people, they?re surprisingly receptive. That?s because we all have needs, and welcome the opportunity for others to step in and help us fill them. Make that assumption, and make it a part of your future existence to reach out to people, and seek genuine community.
What do you think? Is this the right time for a full-blown Alt-retirement movement?