Over and over I read about various people’s plans for creating retirement income. You know the one thing that they have in common? They all have different approaches. There is no “one size fits all” approach to retirement out there. Many of us do not know what will happen after retirement, we may be fine financially, but illness can occur and the need for a philadelphia home health care agency, or one similar to it, can become a real possibility. Rather than try to match someone else’s approach, I have laid out a number of my own possible scenarios:
1) Retire at 65 and do absolutely NOTHING
This is the least attractive scenario for me. The magical number of 65 would (in theory) give me access to medicare if it’s still around. It would also give me a longer saving horizon giving more of my money time to compound. If I retire at 55 with $1 million, waiting until 65 could increase the number to over $2.3 million without contributing another cent. That assumes I get 9% on my money, although that may be aggressive considering I’ll be less interested in the risk to get a 9% return.
I really don’t want to wait until I’m 65 to quit working. Frankly, I don’t like work and would much rather pursue other interests.
Pros:
- Longer saving horizon
- More health care options
- Less risk in outliving my money
Cons:
- I’d have to wait until I’m 65
- Less quality years ahead of me
- Life is short
- Less time to pursue other interests
2) Retire at 55 and Do Nothing
This option sounds pretty darned attractive to me but I’m concerned I’d get pretty bored and I KNOW I’d annoy the heck out of my wife while trying to keep busy. This option also carries a lot of risk in it. While we are saving pretty aggressively, we aren’t saving aggressively enough to live on our money for 35+ years. If things went well in the economy, we could probably pull it off, but I’ve proven to myself that I’m pretty darned risk averse and would like to have as much cushion as possible.
55 is a good age to stop working, but I just don’t know what I’d do with the time.
Pros:
- No longer a slave to a job I’m not too excited about
- More chance to try new things and explore the world
- Potentially many quality, healthy years ahead of us
Cons:
- What do we do about health care?
- How would we make our money last?
3) Retire at 50 and get a lower paid job in an industry that I am interested in
There are lots of jobs out there that I would love to do but the money is terrible. We just couldn’t live on the salaries that these jobs pay. I think this option is probably the most practical and interesting option of the 3. If we scaled back our consumption and had our homes paid off, we could easily live on much less than we do today. Our only bills would be taxes and ongoing living expenses like power, water, cable etc. By retiring (aka switching careers) at 50, we could work less, and do work that was more meaningful to us. This option would also give us access to health care options that we wouldn’t have if we sat at home.
We are on target to pay off our houses before we turn 50 and we don’t maintain any other debt so this option is actually quite achievable. The only gotcha here is that our daughter will just be going in to college. We are hoping to offset that by investing today in a 529 plan for her.
Pros:
- Pursue work that we enjoy
- Access to health care options
- More time for hobbies and other interests
- Use much less of our invested assets due to income from the low paying jobs
- More time for invested money to compound
Cons:
- Quitting your high paying job while your daughter is in college doesn’t feel too good
- May not have as much time to travel and enjoy “retirement”
Great list of questions to consider. Of course, you could always retire early and start a business that you enjoy.
One option that I would personally enjoy (I think) is teaching. But the pay is about 20% of what I make now, so I’d have to make sure that I had a healthy retirement fund already set up!
i think, as with many things, there are more shades of gray here than black and white.
I also like your option #3, but there are other variations on this theme. for instance, my plan is to pay off my mortgage at around age 58, tho i could pay it off now if i wanted, then retire from f/t work at age 60 but find a p/t job that pays benefits, ie, health insurance, to bridge the gap until age 65.
Working p/t would allow me more time to do my own thing and time has always seemed in such short supply during my working years. It could be a challenge to find p/t work with benefits, but there are certain companies that offer health insurance for p/timers, ie Starbucks and Costco. Hey, i’m not proud, i don’t care what kind of work it is, if it’s p/t i should be able to handle it. And from what i’ve read, the trend will be for more companies to offer that as baby boomers retire and leave the workforce, resulting in a shortage of workers.
Great pondering for the public to see, as many have/will have/have had the same quandry before them. It always helps me to see that others are deliberating the same things I am…makes me feel human and helps make my concerns feel legitimate.
CONGRATULATIONS! You have won the Mrs Nespy’s Frugal World Gold Medal for August 19th. Go to http://mrsnespy.googlepages.com/grabyourmedalhere to get the code to post your medal if you’d like. Thanks for the great writing!
Two comments:
1) Retirement can be a lot more boring than people anticipate. As much as work can be dull, at least it fills up the day and makes you feel productive. You’d be surprised how quickly sitting at home all day can get old. Besides, daytime TV is terrible. Hobbies and traveling can fill that void, but most of those kinds of things require significant expenditures. If you’re pinching pennies to make sure you don’t outlive your money, you’ll likely find that retirement isn’t all that it’s cracked up to be.
2) Money goes much more quickly than you would think, especially when you get older. You may find that you want/need to help your children or grandchildren with housing or education expenses, you’ll probably want to travel to visit them with some regularity, and you won’t want to leave them with the burden of supporting you in your old age. Furthermore, if your friends are still drawing a paycheck, they won’t be looking for low-cost activities to the same degree that you are. Moral of the story: you can never have too much in the bank when you retire.
One idea that is appealing to me is taking a few months or a year off from work when I reach 55 or so. See how I like the lifestyle, and see how much money I blow through. Then evaluate whether I should try to go back to my old job, look for a part time replacement, or retire altogether. Just another option potentially worth considering.
i think 1 important key to a fulfilling retirement is to schedule your time in more easily managed blocks. In other words, if you have days upon days with no particular schedule, you may well wind up whiling it away or doing not much of anything, bored out of your wits.
but if you budget your time in the same way you might budget your finances, you’ll likely end up more satisfied. For instance, sharpen your pencil and make a list of the types of things you want to do, on a weekly or monthly basis, from say, a good brisk early morning walk 4x weekly to family/friends visits to volunteer work, etc. Try to incorporate fixed activities at least a few times a week and then flesh out the rest as you go.
Retirement is complicated. I have seen my family pay into a pension for it to be worth very little when it matured because of stock prices being low.
I think the best plan for retirement I have read come from a book I read ‘the 4 hour workweek’. Essentially the plan is to work forever and to choose quality of life over retirement. To do work you enjoy, not the 40 hours grind. To do work that can be done in short bursts and from anywhere you have a PC / WiFi. A great read.
My view on retirement have always been work hard when your young,make the money and retire. Starting a business then now makes much more sense,have a plan.Each time you convert part of your plan to an annuity, you can take part of it as tax-free cash. Insurance companies often set a minimum fund size for annuity purchases. This is called a phased retirement.
I am of the group that wants to retire around 50ish and be able to do it up for a good amount of years. I want to retire and be able to run my own gig so I am going to need a pretty penny by that point in life.