Do you remember the song Somewhere Over the Rainbow from the Wizard of Oz? I could be wrong, but I think that?s something like the concept a lot of people have about retirement. It?ll be a whole new life, with brilliant new adventures, and none of the problems of your current life. But will it? More likely, retirement won?t be an end game, but more of another phase on the road of life.
Let?s look at some hazy, but perhaps over-optimized assumptions that may not be realized when the retirement years hit.
Your Pre-Retirement Life Won?t Suddenly Disappear
Life comes with a curious mix of pleasant and unhappy circumstances at every phase. While it?s common to think of retirement as some sort of nirvana, the basic patterns of life are unlikely to change substantially. You won?t suddenly wake up one day retired, and find yourself on the blissful other side of the rainbow. In fact, post-retirement life may look disturbingly similar to pre-retirement life.
Let?s start with the basics. You?ll still be you. Your circumstances may change somewhat in retirement, but that much won?t. And while you may in fact have a more carefree life, the people around you ? even the ones you love ? probably won?t. How much peace you?ll have in retirement may be largely dependent on the status of your loved ones.
For example, if you have an adult child who?s going through a divorce, dealing with an illness, or facing a career crisis, that won?t go away because you?re retired. Neither will an in-your-face neighbor, rising property taxes or bad internet service.
And the big picture? It will be totally unaffected by your retirement. There will still be wars, obnoxious politicians making promises they have no intention of keeping, environmental degradation, inflation, and all the other macro problems that have affected us all our lives.
Your Income May Not be as Stable as You Think
Have you noticed how retirement projections always include perfect world scenarios? You know what I mean ? you?ll have to X amount of money saved, producing Y income? It?s as if your retirement will run on guaranteed assumptions.
And you know what they say about that ? never assume.
Even if you have X amount of money saved, the income it will produce will not be a fixed number. For example, if you?re counting on interest income, it?s a fact that interest rates change, sometimes dramatically. If you retire with 5% interest, but rates drop to 3% a few years later, your income will take a hit. By contrast, if rates rise to 7%, you?ll have more income than you expect.
The situation is even more dramatic if you?re primarily invested in the stock market. During a bull market, you might reasonably expect annual returns of around 10%. You may be able to withdraw 5% of your portfolio each year for living expenses.
But should the stock market experience a major slide, like it did during the Dot-com Bust and the Financial Meltdown ? on the order of 50% ? you may find yourself unable to take distributions from your portfolio at all. In fact, at that point your retirement may be at least temporarily in doubt.
You may even find that there are different times when you?ll need to come out of retirement at least partially, and work to supplement your income. A major stock market slide would be just such a time.
There?s just no way to know for certain, and that?s what you need to be prepared for.
You Won?t be Insulated from Problems and Crises in this Phase of the Road of Life
I just covered how family problems and stock market crashes will still affect you after you retire. But that?s just the short list. There are all kinds of problems that can visit your life, whether on a global level or personal one.
For example, if gasoline prices suddenly double, that will be no less a problem in retirement than it was when you were working. You may not have the commuting issue, but it might seriously cut into a fixed income.
Health is another variable, and the divorce rate for Baby Boomers is actually rising with age. Meanwhile, this article in The Atlantic raises an interesting phenomenon known as “grandfamilies”. It’s a rising trend in a world where broken families and out-of-wedlock births are fast becoming the norm. Unmarried, divorced, or crisis stricken adult kids are increasingly turning their kids over to the grandparents to raise.
This isn?t to spread doom and gloom, but rather to point out that it?s just as important to be emotionally prepared for the retirement years as it is to be financially prepared.
Your Social Life May Change, and Even Radically
The same work that we try to escape through retirement is also often the primary source of our social interaction. For many people, most of their friends are work related. This makes perfect sense, because not only do you have the commonality of occupation creating a bond, but you also spend a lot of time together.
Once you stop working, it?s likely those work friends will gradually disappear.
You may also find that retirement itself creates something of a social barrier. You and your still working friends may gradually find you have less in common. Other retired friends may move away.
It might be necessary to create a whole new social network in your life. That?s not something most people plan for, unless they expect to move to a distant location when they retire. But it?s something that requires at least a loose advanced game plan.
Your Health May Change ? And it May Even Get Better
This is actually a mixed bag. While we generally associate advancing age with declining health ? and that?s certainly possible ? it?s not the only potential outcome.
Many health conditions are stress-related. These can include headaches, stomach aches, hypertension, obesity, anxiety, depression, and a host of other ailments. All can be either caused or contributed to by stress. Once you?re no longer working, or at least working full-time, much of that stress will disappear.
You may also find that you have more time to maintain your health. More time to exercise, to create a healthier diet, and even just to relax.
It?s entirely possible that the main health-related outcome of retirement will be improvement, not decline.
And it?s something that?s worth preparing for. If you?ve never taken much time or effort to improve your health, have a game plan for when you retire. And don?t wait for that moment to come ? gradually implement changes as you move forward.
You May Even Be in a Whole New Career
The classic view of retirement is a complete end of work. But a more realistic view ? at least for the majority people ? may be shifting into a different kind of work.
There?s nothing inherently evil about work, unless you hate what you do for a living. But once you reach the retirement years, and the pressure to create and finance a lifestyle is no longer there, it?ll be easier to concentrate on doing the kind of work that you find rewarding.
That?s more important than most people realize. Work doesn?t have to be agonizing. And when you consider that it?s one of the main connections we have to the human race, you may not want to make a complete exit from the ?rat race?.
I suspect that for most people, simply downshifting will be more than enough. Sure, you might want to dig out of the grind of the career you?ve held during your working life. But there?s plenty of work you can do ? in a completely different direction ? that you may find totally satisfying.
Not only will it enable you to earn additional income ? which may be more important in the future than you can imagine right now ? but it will also keep you engaged in life, and living with the purpose.
Winning advice from the pulpit
This past Sunday, our pastor hit another sermon home run. He emphasized God as Creator. He then made the connection that since we?re all made in God?s image, we all have the capacity to create.
That resonated with me, because it was something I discovered fairly late in life ? that I?m more creative than I ever imagined. Enough so to even make a living at it. I suspect most people are, even if they don?t know it.
If you can tap into your creative side ? and you almost certainly have one ? you?ll probably find some type of work that?s completely agreeable for you. If you?re currently retired, it?s worth investigating. And if you?re not retired yet, it?s well worth planning for.
Think about the things you like to do, or the things you?re interested in, and go from there. Just make sure you don?t erect any imaginary walls along the way. Think of it more as a blank canvas, and decide how you want to paint it.
What?s the Point of All this Negativity???
Simply put, no matter how much you might be looking forward to retirement, it ain?t gonna be Heaven on Earth!
The financial media is deep into selling us the dream. And why not, there?s money to be made in doing that. But retirement won?t be a dream any more than it will be a nightmare. It?ll mostly be a lot closer to your current life than you may be comfortable admitting.
And just as important, never let the dream of retirement get in the way of your current life. No one phase in your life is any more or less important than another. But to hear the media tell it, it?s all about retirement, and being prepared for that hallowed day.
When it comes, it?ll be about a lot more than how much money you have in your retirement portfolio. You?ll need to be ready for it all, even the parts that will have nothing to do with money.
They?ll be there, because retirement will be eerily similar to the rest of your life.