You Need To Work Longer But Will Be Forced To Retire Earlier

Writing for Bloomberg, Allison Schrager suggests that in order to enjoy retirement, we should work a little longer. Ann Tergesen at the Wall Street Journal reports that while most people expect to retire at 65, 62 ends up being more like it. So what the hell are we supposed to do? 

Summing up Schrager. most people are not financially ready to retire at 65 or even 67, combined with longer lifespans she says, we'd be better off working into our 70's. Fortunately for her scenario, there are some demographic trends that indicate that a labor shortage is in the offing. 

The sorts of things that inhibit our ability to work longer are all things you've heard before including ageism which can include a lot of different things, some sort of medical or physical issue or some sort of burnout. 

There were over 800 comments on the WSJ article. I always say read the comments and while I did not read all of them, I looked at quite a few and of course there was just about every possible reaction. There were sad stories, people who started their own business and still wildly successful in their 70's, comments blaming both major political parties, people talking about conspiracies to manipulate us toward a couple of very different outcomes, on and on. 

People having their hand forced earlier than they were planning, this happens to plenty of people in their 50's, is a real thing that can coexist with the financial need for many to work longer. Sitting idly by and hoping nothing like this happens or being in denial about the possibility are probably very common behaviors but the idea of not being proactive is not something that I personally could live with. Like with anything, the more you put in, the more you get out including how you develop resilience and optionality. 

We have this conversation regularly. At 50 or so, you probably need to have a decent understanding of where you stand. Are you generally on track, way behind or far ahead? From there, I think you need to understand what things you're relying on like working until a certain age or maybe an inheritance or downsizing your house to get cash out or anything else. I would also start to Plan B some ideas if the thing(s) you're relying on doesn't pan out. 

As we pointed out above, all sort of things can get in the way of a plan that relies on working until some "older" age. Top down numbers on inheritances are all over the place but if you are planning on some sort of inheritance and assuming no Mr. Marbles gets the summer house plot twist like the pet food commercial, some sort of longer than normal assisted living situation could seriously reduce an inheritance. Downsizing a house has at the very least become more difficult to do as house prices and interest rates have skyrocketed. I'll add another one, focusing for years on moving to a specific country and then that plan unraveling like what has gone on in Ecuador lately. I read something today that talked about Ukraine having been an expat destination. I haven't even mentioned coming up short in retirement savings. Not something catastrophic like having nothing but like coming up 20-25% short which is more of a problem than a catastrophe.

There really are a lot of variables and things can take a negative and unexpected turn. It is up to us to mitigate that for ourselves. 

Resilience becomes easier, the earlier you start. There are huge payoffs in your 50's and 60's from having lived below your means. You probably have a little in the bank and at that age, it would be reasonable to be mortgage free at that point. Maybe, there are no car payments so all you have pay for are various insurances, taxes, utilities, food and unbudgetable one-off expenses. Hopefully there's a little left over for fun too. 

If you do end up out of work and you have no income, odds are very good that health insurance will be almost free. If somehow part of a severance package includes free or cheap insurance, that'd be nice but explore insurance through healthcare.gov. Also, if you get to the end of a calendar year with no earned income, that might be a path to a small, up to the amount of the standard deduction, tax-free Roth conversion. Ask your tax preparer about that. 

Optionality needs to be cultivated and there are quite a few ways to do that. Keep up with how your industry is developing by staying curious and keeping up skill-wise. Stay curious to learn about entirely different things that could grow into some sort of opportunity. I always talk about actively volunteering as a path to a job opportunity. Work on creating some sort of passive income stream. Passive is really a misnomer as these things usually require a lot of work. And of course start early to see if any of your hobbies can be monetized. 

In a scenario of having your hand forced at 55 or 60 or whatever but most of the way there with your retirement account balance but not all the way there, mortgage free and able to create some sort of income stream, that income stream can hopefully cover the various insurances, taxes, utilities, food and unbudgetable one-off expenses. If your retirement account balance is close then maybe you don't have to add to it in this Plan B type of situation but one more full stock market cycle and maybe the total balance can grow enough so that you hit the amount you think you need which is not a heroic assumption. 

I've said before, I've seen plenty of people where I live, without a lot of money, figure this out because they had to. I believe in that but would prefer to have as little stress as possible in case I ever need to figure it out because I have to. 

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.