Chapter 14. Recasting Retirement

As you considered in Chapter 10, “The New Career Rules,” the traditional path of working for the same company for a number of years, and then gliding off into a golden sunset paved with pension money, has vanished. Today’s worker is loyal to his or her community of peers and shuffles from job opportunity to job opportunity, saving money in individual retirement plans along the way.

In fact, the very nature of the traditional retirement at age 65 is outdated. Today, the average American has a life expectancy of 77.7 years,¹ with an annual increase in life expectancy of 0.2 years every year over the past decade.² To put it simply, people are living longer than ever and the trends point toward even longer lives in the future.

¹ National Vital Statistics Reports, p. 1, Vol. 57, No. 16. “Deaths: Final Deaths for 2006.” http://www.cdc.gov/nchs/data/nvsr/nvsr57/nvsr57_14.pdf. Retrieved July 16, 2009.

² Child Trends Data Bank. “Life Expectancy.” http://www.childtrendsdatabank.org/indicators/78LifeExpectancy.cfm. Retrieved July 16, 2009.

With a longer life comes a longer period of vitality. People now commonly work into their seventies and eighties; many people begin a new career in their sixties.

Retirement no longer means kicking back in the Barcalounger watching The Price is Right and waiting for the grandkids to come and visit. It means an exciting new stage in life, complete with new challenges.

Retirement Rarely Equates to Idleness

Remember my story about my father from Chapter 10? His retirement didn’t exactly turn out as planned. He’s often worried about the company’s long-term stability and the future of that very pension that he had been promised for so long.

His solution, like many other retirees, was to do something about it. In his sixties, he transformed his lifelong hobby of fishing into a lucrative side business, earning a solid supporting income for himself and my mother. To further supplement his income, he also launched a tomato-growing business with another member of his family, selling his wares directly to supermarkets and local restaurants.

This is not what most people think of when they hear the word “retirement,” but it’s becoming the trend for retirees who find themselves at the age where they can start cashing in on their pensions and their 401(k)s but discover they have a lot of vitality left in them.

With the longer lifespans and greater vitality that we all have in store, retirement no longer equates to idleness.

What’s Your Next Act?

In his book Free Agent Nation, Daniel Pink looks at burgeoning movement of retirees who are doing exactly what my father did: reinventing themselves at a traditional retirement age. “Legions of [...] sixty-plus Americans are becoming freelancers, micropreneurs, self-employed knowledge workers, temps, home-based businesspeople, and independent professionals. They’re working as part-time, some time, and anytime free agents—using the Internet as a platform for finding and executing work.”³

³ Daniel Pink, Free Agent Nation. p. 234. ISBN: 9780446678797.

As discussed in Chapter 10, the new frontier of building professional opportunities for yourself comes from connecting with communities of your peers who are also engaged in your career. These communities often develop online, sharing resources and making themselves ever more open to opportunities of all stripes. Rather than focusing on who you are, these communities place value on what you can provide to the community, and Americans near retirement age, with an enormous wealth of knowledge and experience built up over a long career, have a lot to offer.

What’s your next act? What excites you? What do you want to do with the rest of your years? Your lifetime of work has given you the tools and resources you need to succeed, and the Internet provides the access you need to a community of supportive peers. There’s no better time than now to dive in and find out where this new path will lead you.

Recasting Retirement Savings

From this perspective, saving for retirement no longer has the same goal that it once had. Previously, retirement savings was intended to allow people whose vitality was slipping to live out their final years in financial peace. Today, however, retirement age arrives, and people still have vitality. They still have the desire and the ability to work on projects that challenge and excite them.

What does that do to the traditional role of retirement savings?

To put it simply, it turns retirement savings into a tool to support challenging professional and personal choices. Instead of fully supporting you in a reduced lifestyle, retirement savings can maintain you in the lifestyle you’re accustomed to while you take on personally fulfilling challenges that might not be financially lucrative. Doing things like becoming the secretary of your church, becoming a freelance artist, or taking a job at a nonprofit are no longer financial suicide if you have retirement savings to supplement such a position. Instead, they become deeply fulfilling personal opportunities.

For many, retirement savings has a depressing feel. People don’t want to visualize their life during the period that many of us think of as retirement. However, the nature of those retirement years is changing fast. Instead of being a slow ride into the sunset, retirement is an opportunity to claim a lifelong dream, and retirement savings makes that possible.

Instead of saving for retirement, you’re saving (in part) to support your next act in life.

Retirement Savings Versus College Savings

Parents often have a challenging choice to make once their children are born. At a time in their lives when their money is tied up on many fronts—saving for a down payment on a home, struggling with the relatively low income level one earns early in a career—they’re hit with the double whammy of needing to save for retirement and also needing to save to support their child’s education.

It seems like a difficult choice, but it really isn’t. Save for retirement and let the cards fall where they may when it comes to college savings. There are several reasons for this.

First, a college education can be earned without college savings, while retirement cannot. Many students earn a college education with minimal financial support from their parents—myself included. Not having such support requires students to seek out more scholarships and take more responsibility for the value of their education instead of having it handed to them on a silver platter. It also provides a better case for financial aid. At the same time, the early years of retirement savings—the ones that provide the longest timeframe for aggressive investing and the most years for compound interest to work in your favor—are absolutely vital and should be maximized.

Second, eschewing retirement savings in favor of college savings puts your children at risk later in life. Many parents choose to forego retirement savings and save for their children’s education under the belief that the best assistance they can give their child in adulthood is to not saddle them with student loan burdens. However, by doing that, you put them at a much higher risk of having to support you financially in your old age due to inadequate retirement savings.

Third, college savings may not even be necessary for the path your child chooses. Your child might choose an entrepreneurial path. Your child might choose a lucrative trade school, choosing to become an electrician, a plumber, or a carpenter. Your child also could earn enough in scholarship money to make college savings redundant. In any case, following a typical savings plan for college may be redundant.

Often, caring parents—such as myself—are unconvinced of this argument. Yet, there’s a simple solution for balancing both of these conflicting desires: Save for retirement in a Roth IRA.

A Roth IRA is an individual retirement account that you set up on your own, independent of your job. You put money into this account after taxes, which means that it doesn’t go straight out of your paycheck like 401(k) savings does. However, a Roth IRA has a huge advantage: You can withdraw your Roth IRA contributions for any reason without penalty. If you are saving for retirement but then decide to make a withdrawal to help with educational expense, you can do so with minimal consequence—the only drawback is that you cannot replace the contributions once you withdraw them.

A final point: Involve your adult children in your estate planning. This goes far beyond merely involving them in the preparation of a will. Prepare a document with them that explains every significant step that needs to be taken to cash in all of your insurance policies, cancel your accounts, and settle your affairs. Keep this document updated. It’s a simple step that you can take to make the burden of your eventual passing much easier on your next of kin.

Revisiting the Crossover Point

In Chapter 12, “Managing the Gap,” we discussed the idea of the crossover point—the point at which the income from your savings and investments exceeds your living expenses. We also referred to the partial crossover point, the point at which the income from your savings and investments plus the reduced income from a job that deeply fulfills you (but perhaps doesn’t earn as well) exceeds your living expenses.

This “partial crossover point” is exactly what you want to shoot for in this brave new age of retirement. As you transition into a second act, you’ll likely find new avenues for income—but these income sources may be a significant drop from what you’re currently earning. Transitioning from middle management to a job at a charity can equate to a huge drop in income, as can switching from a career in nursing to a career as a church organist. Even switching to a potentially lucrative freelancing career can have challenges, as income is wildly uneven for people in such careers. Your retirement savings becomes the bridge between paydays.

The most amazing part? The tax advantages and matching funds for retirement savings make all of this look easy.

Five New Steps Toward “Retirement”

Here are five steps you can take as you approach this new kind of retirement:

1. Spend some time thinking about what you would do with your time if you had a small supplementary income to help you live the life you wanted to lead as long as you stayed productive. What dreams would you chase? What opportunities would you grab hold of?
2. Plan ahead for your second act. Look for opportunities in the career path you have now to build the skills you will need when you reinvent yourself. In particular, always work on your transferable skills—communication skills, leadership, information management, and so on.
3. Take advantage of all matching funds in your 401(k)/403(b). Matching funds are essentially free money given to you by your employer to accelerate your retirement savings. Take advantage of them.
4. Open a Roth IRA for additional retirement savings. Because you’re able to withdraw contributions from a Roth IRA without penalty, their flexibility for retirement savings and for other major goals make them valuable.
5. Make a master information document. A master information document simply lists every significant piece of information about your life and your financial state that someone might possibly need to know in the event of your passing. Include descriptions, contact names, business names, addresses, phone numbers, account numbers, and other such necessary information. Keep it all in one place, somewhere safe, and let the most important people in your life know where it is.