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Why You Should Never Fully Retire

Millions of working people want nothing more than to pack it in and retire. The Internet has spawned websites and chat rooms dedicated to the topic. People swap stories about what they’re doing to make it happen, and how it’ll feel when they get there. But like so many other aspects of popular thinking these days, the desire is disconnected from reality. That’s why most people should never fully retire.

Consider a recent survey that shows that the average Baby Boomer, the generation currently retiring in waves, has less than half as much money as they think they’ll need to retire. And even the amount that they think they’ll need is almost certainly less than what they actually will need.

But that’s only the beginning of the problem.

Why You Should Never Fully Retire
Why You Should Never Fully Retire

Systems Don’t Always Perform as Expected

The news media has been awash in stories about failing pension systems. The poster-child pension failure has been the Central States Pension Fund, which covers nearly 300,000 retired union workers. As active union workers have declined dramatically in recent decades, there aren’t enough workers to fund the plan for all of the retirees collecting benefits from it.

This is hardly an unusual situation, and private sector pension plans aren’t the only problem area.

Depending on which definition is used, it’s now estimated that state and local government pensions have a cumulative funding shortfall of between $1.2 trillion and $4.1 trillion. The problem is more severe in some states than in others. States like California, Illinois and New Jersey dominate the headlines, since their problems are more extreme. But it’s a growing problem nationally.

What’s making the situation more complicated is that the shortfalls are developing at a time of a supposedly expanding economy and rising stock market. What becomes of these pensions if the stock market goes into a prolonged bear market cycle? I suspect we’re going to find out soon. And when we do, bad will go to worse much more quickly than anyone thinks.

Social Security Benefits – a Strong Argument to Never Fully Retire

I’m not in the chorus of people who think that Social Security is going bankrupt. Somehow or other, the government will keep benefit checks going out. They have no choice.

But I’m equally confident that benefits will be reduced through other means. It may be in the form of raising the retirement age (which is already happening), gradually reducing future benefits, or making payments in seriously inflated dollars.

I suppose that’s really all a smoke and mirrors alternative to formal bankruptcy. After all, it all brings us to the same end, which is a gradual and effective reduction in benefits.

Just Because You’re Retired Doesn’t Mean You’re on Easy Street

This is the ultimate moral of the retirement story. Our entire economy is tightly balanced, and that includes the retirement sector. The stock market reversal that happened during the Financial Meltdown made the country aware of this problem. But the fundamentals have not been addressed since. Eight years of economic and market recovery have failed to make the problem go away.

I’m afraid the days of retiring to a life of bliss for over. Just because you’re retired now and living comfortably doesn’t mean that it will always be this way. If you’re on a public or private pension, you could be at real risk of a serious reduction. Social Security meanwhile could turn into a slow bleed.

Enjoy the benefits of both at the moment, but keep planning for the future, just as you always have. Retirement isn’t a magical time in life, when all cares disappear. They’re still there, they’re just temporarily covered over with income streams that we’re being promised are eternal.

”Any one who retires in this economy is a fool”

That was a warning from my Uncle Jimmy at age 88 (now 91). We were having dinner at their house, and in passing he mentioned about going to work on Monday. I was stunned, having thought he had retired years earlier. But that wasn’t the case.

A true example of a self-made millionaire, he feels strongly that the current economic situation doesn’t support full retirement. He made his money in real estate, and continues to do maintenance work on the few properties that he has remaining.

If anyone could outright retire, it would be him. But I’ve known others like him. Self-made financial successes, who see no percentage in retirement. Oh sure, he slowed down, and he does the things that he wants. But he always keeps his hand on the economic handle.

There are some people out there who are so prosperous that they will enjoy the TV version of retirement. But many of those people are rich, and already enjoy that lifestyle during what are the working years for people ordinary means. But for the rest of us, uncertainty continues to loom large.

We ignore it at our own peril.

What’s the Solution? Never Fully Retire!

That’s at the top of my list, but I’ve added three more strategies.

1. Plan on having some kind of earned income for as long as you can.

This doesn’t mean you can never retire. But by having at least a part-time occupation, you’ll be less dependent on savings and Social Security. That should help you weather a pension cut, or at least to avoid outliving your money. I plan to at least continue freelance blog writing, hopefully until I die. And fortunately, it’s one of those skills/crafts that I can do even at an advanced age.

Not only does some form of occupation help to ensure your ability to survive financially, but it also has social, psychological and emotional benefits as well. Just having a reason to get up every day is an often under-estimated advantage as we age. As well, keeping an active occupation enables you to make a full-on reentry back to working life, should that ever become necessary.

Have you seen those retirees who sit around the house watching TV all day? Don’t be – or plan to be – that person! I don’t know anyone who lives like that who’s happy. During program breaks, all they do is complain.

2. Don’t be in such a hurry to retire.

The earlier that you retire, the longer that you will need to provide for yourself financially. That means that you will begin tapping your retirement savings early, as well as drawing Social Security benefits. That can make sense if you’re either chronically unemployed or underemployed by age 62, or if you have serious health problems. But if you do, your Social Security benefit will be seriously reduced.

Statistically, 48% of women and 42% of men begin collecting Social Security retirement benefits at age 62. But you can increase your monthly benefit by 6% per year if you delay collecting your benefit until you reach your full retirement age (FRA). You can increase it by an additional 8% per year if you delay collecting benefits past your FRA, up until age 70.

Under that formula, a $1,400 per month benefit at age 62 would increase to $2,000 per month at age 67. That’s the FRA for anyone born from 1960 or later. You can increase the benefit further, up to $2,480 per month, if you delay collecting benefits until age 70.

3. Plan to keep your expenses low.

If you’ve been frugal all your life, you have a built-in advantage. You can just continue the same lifestyle. Retirement is all about doing more with less, and that’s a true talent. But if you’ve been living well, perhaps because you can afford to during your working years, you may be in for a rude awakening.

The problem with a high consumption lifestyle is that it can be crippling in retirement. Nothing about it affords you the discipline necessary to live on an income that’s fixed at a lower level. This is especially true about the big expenses, like housing and cars. They’re built-in expenses, and if they’re high they cause a chain reaction of higher costs across your budget.

Live light and on the cheap, and you’ll live a better life with more options.

4. Save and invest money like your life depends on it – because it probably does.

For all the reasons we discussed earlier, you still need the largest retirement portfolio that you can create. Never assume that you’ll be fully insulated by high pension and Social Security benefits.

I’m one of the world’s greatest cynics when it comes to the promises of investing your way to retirement riches. But at the same time, a generous investment portfolio will provide you with a large financial cushion. Even if it does nothing else, it will give you maneuvering room in sudden changing circumstances.

In addition, income from a retirement portfolio can supplement Social Security, pension and earned income, helping you to stay comfortably afloat longer. It’s about applying the principle of multiple income sources to retirement. And given that the average person is living another 20 to 30 (or more) years after retiring, this is an absolutely necessary step.

Don’t worry if you haven’t been able to save up enough retirement savings to give you a golden retirement. That’s great, if that’s what happens. But even if it doesn’t, just having a gigantic emergency fund can soften any number of financial blows.

Have you been paying attention to the news about pension shortfalls and benefit cuts? Are you at all concerned that your retirement may not be as secure as you hope? If so, what are you doing in response to these concerns?

( Photo by frankieleon )

6 Responses to Why You Should Never Fully Retire

  1. I retired at 60 and do not regret it. No pension but I have way more money than I need. However I still do part time side gigs for entertainment and they provide the six figures of annual income that completely cover our cost of living. But not for the good reasons you stated. In my case it is for the mental exercise and to keep my brand alive, just in case I decide I want to work again full time. However I agree with you, few have my level of resources and those that do still may want to keep a toe in the water in case they change their minds!

  2. You’re hitting on the “keeping your options” open idea Steve, and I think that’s what most people need to do. Good on you for having more money than you need, but I’m sure you can appreciate that that doesn’t describe the average person. It seems that you have a talent, which is something worth pursuing for anyone who is in or contemplating retirement. I believe we all have talents waiting to be developed, and retirement is an excellent time to bring them out. The problem of course is that so many people stop striving when they retire. From my perspective, it’s better to pursue your talents for all of the reasons you listed.

  3. This is a perfect article for my life. I have a state pension. I retired at 48. Mainly to pursue my own business. I never think that this penson will last the rest of my life. I am glad I have it now because it sustained me while I basically made no money my first four years in business.

    Things are better now. I’m starting to see some profit. I operate on the assumtion that social security and my penson will not be there 20 years from now.

    I have zero faith in any system run by a state or federal gov.

    I’ll never retire. For 20 years I used to work two sixteen hour days and had four days off. Every week. It got boring. You can only fish or play so much golf or sit on so many beaches or whatever you like before it gets lame and your brain turns to mush. It’s a complete myth.
    This dream has been shoved down our throats here in America for 100 year’s. It’s a lie. I never plan to retire. Not until I’m dead.

    We were meant to keep moving in life. If your dream is to say travel. Do it now. Even if it’s once a year. You can do everything as someone without a job. Maybe not as much but you can if you plan it right.
    Also even if your retired I doubt many would have money enough to travel around the world for weeks or years at a time.

  4. Obviously I completely agree Tim! If anyone’s ever actually calculated the cost of the idle retirement-travel the world-do any/everything you want version of retirement with realistic numbers, they’ll find that you need well over $100,000 a year. That’s not retired, that’s rich, and few people will reach that level. In the years that I did income taxes it was very rare to see anyone fully retired with a six figure income. Most were half or less, and that was a generally well-to-do clientele. I’m not saying it’s not possible to reach that level of retirement income, but let’s face it – how many people are willing to do what it takes to reach that level?

    In truth, what we should all be looking for is balance throughout, much more so than retiring rich. I agree, travel and enjoy life when you’re young. The good habits you’ll acquire through living a balanced life will carry over into the retirement years. Actual full retirement isn’t necessary in most cases. People routinely dismiss the non-financial benefits of work, as if it’s a prison sentence. I suppose that it is if you hate your work or your job, but that should provide the motivation to actively seek work that you like. I can’t imagine working a lifetime at something you hate doing so much that you live to retire. And I’ve seen too many people working happily in their retirement years to think otherwise.

    Use retirement income to create income sources that you enjoy doing, and you’ll never run out of money. Sit back and assume your pensions and SSA will cover you come what may, and find your golden retirement disrupted at an inconvenient time.

  5. I did want to mention one other thing that people take to much for granted. I believe it is crutial that when you finally decide to leave a job by way of retirement that you cannot be in debt, period.

    No morgages, car payments, credit cards. Nothing and I mean nothing. That to me is of as much importance as having savings. That is part of a essential savings plan.

    It took me 30 years to reach that status. While I was waiting to see some profit from business and just living on my penson. Which isn’t a huge amount. I would have never survived if I had debt.

  6. Absolutely! However, the trend is going the wrong way. Baby Boomers, many of whom got too comfortable being in debt, carry indebtedness into retirement. The statistics on this are ugly. Debt payments are income reducers, and can make retirement very uncomfortable, and even impossible.

    Too much debt can even nullify a large retirement investment portfolio. Staying out of debt is a critical component of keeping living expenses to a minimum. You can’t retire comfortably if you’re carrying debts from yesterday into retirement. Not to mention, that debt limits your options and maneuvering room.

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