The End of Retirement as We Know It?
There are some standard rules and recommendations when it comes to preparing for retirement. Things like:
- Start saving as much as you can as early as you can
- Contribute to your company’s 401(k), at least to the match (it’s free money!)
- Open a Roth IRA for added withdrawal flexibility when you retire
- Calculate the nest egg you’ll need to accumulate for the standard of living you want
- Take out 4% of said nest egg every year and live only off of that
It’s all good advice when the market is doing what the market has historically done. But if you’re near retirement right when something apocalyptic happens (like the mortgage crisis in 2008) and you followed these rules, then you’re probably going to be a little pissed off.
Because there are thousands of people out there that followed the rules and aren’t going to be able to retire the way they’d planned.
This has some financial experts thinking that it might be time to retire the old-school retirement mindset and move on to a new retirement paradigm—one that doesn’t involve saving up a whole bunch of money, investing it, and then living off the proceeds when you’re 65 and no longer want to work.
This Reuters article lays out the case for a focus on “other forms of capital.”
The goal is to focus on other assets that can help bridge the gap during retirement if money is in short supply—assets that aren’t being risked in the market.
“If they don’t have the money, they have human capital like skills and education, and social capital in terms of friends, neighbors or a church. All these things help,” says Larry Cohen, director of Consumer Financial Decisions.
Even if you don’t have the money, investing in things that aren’t stocks and bonds can pay off. If you learn a skill that can save you money, like gardening, then that can help a little bit during retirement.
And being a part of a community can also help with reducing costs—you can buy in bulk or use someone else’s car.
Then there are skills that can actually generate money, like blogging, consulting, or freelance writing. I mean, you have to spend your retirement doing something, right? Another thing you could do is teach. After 60+ years, there have to be a few things you’re really good at or know a lot about. If you had a career in the automotive industry, you could teach a class on how to repair cars or something like that.
I like this idea. It actually does two useful things:
- It helps make retirement a bit easier financially and
- It helps answer the eternal question of “what the hell am I going to do when I retire?”
Traveling and playing golf are good answers, but that still leaves you with a ton of time. I like the idea of a 65-year-old Carlos writing an occasional magazine article here and there, teaching a computer class to other grandpas, and then going on a long walk to stay healthy (and keep health-care costs at a minimum).
In theory, that means I don’t have to stress out so much about accumulating a million-dollar-plus nest egg to be able to “do nothing” after I retire.
If retirement experts can somehow factor these types of activities into the classic retirement calculations, couldn’t I put away less money right now as a 30 year old? Which means I could go on skiing trips or fly to Australia to go scuba diving. If I need less money when I’m older, I should (theoretically) be able to cut down on some of my contributions and use the money right now, while I’m still a strapping young man.
Is this a totally irresponsible and knee-jerk reaction to a stock-market plunge or do you think there’s something to this “new retirement?”
Image by Dawvon