This entire discussion is anathema to millions of people who hope for – and expect – a work-free, worry-free retirement. But many, perhaps most, people will absolutely need to continue working in retirement. Surveys show that most people underestimate how much money they’ll need to retire. Yet I think it’s safe to say that the majority have more than a slight suspicion that full-blown, permanent retirement is highly unlikely.
This article is the fourth of five strategies for the new reality of retirement that I introduced in
What to Do if You Cannot Afford to Retire. The other four are:
- Saving money – no matter what
- Selling your home (or at least being open to the possibility)
- Paying off debt
- Adjusting your expectations
In many respects, I think that planning to continue working in retirement is the most important of all.
Why it May Be Necessary to Continue Working in Retirement
Let’s start with this: Most people have far less in retirement savings than they need.
But let’s keep going with these…
Faulty budget projections. This relates to human fallibility. When preparing budgets regarding future income and expenses, we humans tend to overestimate income, and underestimate expenses.
Inflation. If it seems as if prices have been going up all of our lives, it’s for very good reason – it’s because they have. Government is the primary beneficiary of inflation, which virtually guarantees that it will continue into the future. But inflation is the mortal enemy of retirees everywhere.
It goes something like this: your Social Security income rises by 2%, but the real cost of living increases by 5%. Your real purchasing power decreases by 3%. In 10 years, your purchasing power has declined by 33%.
This happens because your Social Security increases are based on the Consumer Price Index, which is a largely bogus “official statistic”.
The cost of expenses related to the elderly are rising faster than general expenses. First and foremost are healthcare expenses. They’re rising by double-digit percentages each year, particularly when you factor in health insurance premium increases, as well as increases in deductibles, copayments and coinsurance provisions. Where a few decades ago a retiree could rely completely on Medicare, now you almost certainly need a Medicare supplement. And that’s where things start to get weird.
It’s not just healthcare expenses. Every time there’s a boom in housing, house prices, rents and property taxes rise. If you’re on a fixed or limited income, this is a cruel joke of the highest order. Meanwhile, food and energy – which everyone needs regardless of income level – are notorious for taking wild swings. And the wilder ones are always to the upside.
7 Reasons Why Continuing to Work in Retirement Isn’t a Bad Thing
You read that right – it may not be a bad thing. Here are seven reasons why:
1. Keeping an extra income source. You’ll have Social Security income, maybe a pension, and hopefully an income from retirement savings withdrawals. But what if that isn’t enough? Or what if you won’t have one of those income sources? A part-time occupation could improve your situation from barely surviving, to living comfortably.
2. Staying active and engaged. It’s easier to do when you have some sort of occupation. It’ll make it easier for you to continue to relate to the vast majority people who are still working.
3. Staying “economically relevant”. Many people retire, only to return to the workforce a few years later when reality sets in. Continuing to work in your regular or desired occupation, even on a part-time basis, can keep you from being forced into a minimum wage job.
4. Being prepared for changing circumstances. Life isn’t set in stone, not even when you retire. A spouse can die (or leave), lowering your income. An adult child may need ongoing financial assistance. You may be forced to move to a more costly location. If you have an earned income, you’ll be better able to weather those changes.
5. To make your retirement savings last longer. If you continue working in retirement, it either reduces the amount you need to draw from retirement savings, or delays making those withdrawals. Either strategy will make your retirement savings last longer.
6. You may have more to give. From a career standpoint, it’s entirely possible that your best days will be ahead of you, even at age 60 or 65. Don’t underestimate the possibility. Social Security and other retirement income can literally free you up to pursue your dreams.
#7 – A Reason We Don’t Like to Think About
I think we can all agree that life has been pretty stable since the end of World War II. We haven’t faced another military conflict remotely close to that magnitude. We also haven’t had an economic crisis that comes close to the Great Depression of the 1930s. And despite the tumultuous 1960s and 70s, nothing has happened in the US that could credibly threaten the nation’s political stability.
All of that has combined to create a perception of certainty with the future, particularly about retirement. In fact, if you read or hear most discussions about retirement, relative stability is assumed to be a given.
But what if that isn’t the case in the future? That’s not a wild assumption either. All you have to do is read the history books (those that go back before World War II), and it becomes only obvious. While most of human history has been relatively calm, it’s equally true that it’s been punctuated by life-changing crises.
If you’re trying to plan out how you’ll survive over the next 20, 30 or even 40 years, this fact cannot be ignored.
There are all kinds of situations – none unusual in human history – that could change all assumptions about retirement. A nuclear war, a major political upheaval, a massive stock market collapse, a cataclysmic natural disaster, a pandemic, a hyperinflation (worse than the 1970s) or even a currency collapse, are just some of the scenarios that aren’t without precedence. Continuing to work in some capacity will enable you to better cope with any of those outcomes.
I don’t mean to scare you, but we don’t go into Candyland in the retirement years, even under the best of circumstances. We must retain the ability to adjust to changing circumstances.
What Kind of Post-Retirement Career Can You Create?
None of this means that you have to continue grinding it out working in your preretirement occupation. You certainly can, if you like what you do. But if the retirement years do nothing else, they should free you up to do the kind of work that you like. If you’re at least reasonably healthy, the options are virtually unlimited.
Let’s also reemphasize this point: If you will have income from Social Security and other retirement sources, it will be easier to pursue whatever occupation you want.
Without getting into specific occupations, let’s instead set some occupational parameters:
The occupation should provide a “comfortable fit”. Unless you will be entirely or mostly dependent on the income from the occupation, it shouldn’t be high stress. The occupation should blend with your personal life more easily than your preretirement career.
It should involve doing work you like to do. Think about what you like to do, and use that as a starting point for your new occupation. You spend your life working to pay the bills, now you should shift to doing work that you actually like to do. And if you do, it won’t feel like work.
It should be part-time/flexible. Retirement should be more about downshifting than anything else. If you been working all of your life, it’s almost certainly more important to you than you realize. Working part-time, or with a flexible schedule, can give you the type of time control that will feel an awful lot like retirement.
It should maximize your skills and talents. You doubtlessly have certain skills you’ve acquired during your work life. But you probably also have some talents that were never used on the job. The combination of the two can be the key to a new occupation.
Self-employment Should Be an Option
Don’t count solely on the job market, particularly past age 60. It’s no longer as open or accommodating as it used to be. Self-employment should be considered an option. It even may be that your best work can only be done working for yourself.
I’ve long believed that most people dream of being self-employed. But the perception of security kept them from ever acting on it. It’s another fact of the human condition that most of us are plagued with insecurities. One of them is fear of the unknown. Many will spend decades working in an occupation they hate to avoid experiencing the unknown.
It’s only when we step into the unknown that we learn and grow. It happens because you face new circumstances and challenges that you’re forced to overcome. One of the revelations that I’ve learned about life is that overcoming adversity is empowering. If you’ve always played it safe in life, you can’t know what that feels like. But trust me, it’s pretty…wonderful. It makes you feel better about life, and especially about yourself.
If you expect to have Social Security and Medicare, plus any other income sources, you’ll be in a better position to take chances. It may even be a relatively low risk situation. You may even find out that self-employment is less risky than having a job.
If you plan to continue working in retirement – and you should – self-employment needs to be seriously considered. It can open up a whole new chapter life – it did in mine. Retirement will become less important, because you’ll be busy blazing new trails at a time in life when you expected to be folding up the tent.
I suspect those new adventures will be more emotionally satisfying than sitting home retired.