A New Type of Retirement

When you hear the word retirement what do you think of? White sandy beaches? Or sitting on the couch watching TV? If you took a poll, you would find that the vast majority of people in the world have some expectation that they will not work for the rest of their lives, and what that looks like in practice is usually very different from people’s expectations. 

In fact, studies have shown that you have a much higher probability of dying after retiring. One study found that  in general, people who retire at 55 are 89 percent more likely to die within ten years than those that retire at 65.  

Now this certainly has something to do with age and health, but the average life expectancy of an American is 77 years (as of 2023). Most research has found that a lack of a sense of purpose as well as reduced activity (leading to both physical and mental decay) is typically behind early death after retirement. 

Not exactly the picture of those grand “Golden Years” that you’ve imagined, is it? 

The traditional work until you are 65 and then don’t work at all, just doesn’t make as much sense to people today. Especially considering that the original “retirement” wasn’t about traveling the world and doing all the things you’ve wanted to do but have been too busy and broke to do before. 

When the Social Security Act was signed into law in 1935, 65 was the age they determined benefits would kick in. Hence “retirement” was born. At the time the average life expectancy was around 60. The reality was, most people never even made it to “retirement” or received their social security benefits. Retirement was originally about having a safety net for when you were too old to work anymore and didn’t have anyone else to provide for you. We’re talking about the bare minimum here. Not glamorous trips to Italy. 

As life expectancy has increased, and people are living longer and longer past that retirement age, expectations for what retirement should be have increased as well. But the reality is that the way most people are planning on retiring is not going to get them the time off from work that they’re hoping for. 

What if you could have your cake and eat it too?

There is a new way to think about retirement. A way to blend both working, living, and retiring over the course of your life. The traditional model is very linear. You go to school, then you work, then you enjoy the fruits of your labor (retire). We’ve already talked about how that isn’t really working.

With proper planning, you can live a more integrated lifestyle. For example, you could work hard in your 20’s to set a strong foundation. Then you scale back your work efforts in your 30’s to increase what is important to you (travel, having/raising kids, etc.) while you are in your prime and can enjoy it. Then in your 40’s you increase your emphasis on work and income, then in your 50’s you transition again to more play. Then you do some part time work in your 60’s. And by the time you are in your 70’s maybe you do want to be fully retired and focus on the grandkids. 

In practice this looks like a bunch of mini-retirements strung all throughout your life. The power of this strategy is that it allows you to align what is important to you with how you live your life. 

The Problem

Stepping back, let’s look at some of the challenges of traditional retirement.

1. Traditionally when you are the youngest, healthiest, most active is when you spend all your time and energy working. This doesn’t leave much left for fun, travel, experiences, etc. 

You hear stories of people all the time that just hit retirement and then they have a major medical event and are not able to enjoy it. Or people that never even make it to retirement. Don’t put off living your life for some arbitrary concept of “retirement”.

2. Delayed gratification is great but you never know what the future holds. Being able to enjoy the fruits of your labor more frequently can keep you energized, fulfilled, and allow you to work harder. 

Consider the concept of a cheat day when dieting. It is much easier to delay eating those fun but not so healthy foods when you know that soon you will get to enjoy them. Compared to indefinitely never being able to enjoy them again, mentally, it becomes easier to stick to your plan.

Similarly, when it comes to enjoying your life, it shouldn’t be all or nothing. Striking a balance between work/play, now and future is key to maximizing your living.

3. Working from 20-65 is a long grind. A 45 year grind to be exact. And why 65? It is a relatively arbitrary number. Retirement shouldn’t be based solely on age, it should be based on how you want to live.

Like we talked about earlier, when the Social Security Act was signed into law the primary purpose of the program was to help elderly people that couldn’t work. It wasn’t about finally getting a break from working as hard as you could for 45 years straight.

The primary challenge with all of this is how do you afford it? How do you support yourself financially to live an unburdened life?

The Solution

All good things start with a plan (or at least I like to think so). Having some forethought can put you in a much better situation than just hoping for the best and going with the flow. Not saying there isn’t a time and place for going with the flow, but when it comes to your life, you don’t want to leave it to chance. 

If it is to be, it is up to me. 

By taking control of your life with a thorough plan and anticipation of what is to come in the future, you can optimize it. So how can you live a more balanced life that isn’t all work or all play?

Here are 4 ways to think about a new type of retirement.

1. Downshifting

By looking at your life in terms of phases, it can help delineate what is most important to you and when. Maybe you want to take an extended period of time off (a sabbatical), or maybe you want to focus on raising children, or maybe you want to start a business, or maybe you just want a less demanding job. 

Your life doesn’t have to always go up and to the right in terms of income, time working, and stress. When your priority isn’t to maximize your income, a lot more options start to appear. By oscillating between periods of focusing on income growth versus focusing on other areas of life, you can get the best of both worlds.

2. Periodic sabbaticals

To expand on this further, taking 3, 6, 12+ month periods off from working can allow you to pursue or focus on non-work related interests. Oftentimes this gives you the opportunity to explore an interest to a point where you either want to continue even further with it, or have decided that you are ready for the next thing. 

There is a massive reset in your brain when you are given the freedom to think, do, pursue whatever you want. Most people’s stress comes from either money or work. If you didn’t have to think or worry about either of those things, what would you think about? How freeing would that be?

3. Shorter full time retirement

As already mentioned, “retiring” is oftentimes not all it is talked up to be. More and more people are choosing to continue to work longer and typically in a part time role. If you maintain some level of income from part time work or hobbies/small businesses that offset some of your living expenses, you can extend the length of your investment portfolio as well as give it more time to compound and grow.

Extending your full time retirement from 65 to 70 could potentially add over $500,000 to a $1,500,000 retirement portfolio from additional investment returns.

4. Coasting to financial freedom

Coasting to financial freedom is the concept of getting your investment portfolio to a size that will grow to how much you need for a full retirement by the time you get to your desired full retirement age as soon as possible. By starting early and relying on the power of compounding, it is possible to hit this point early in your life. 

For example, if you can have $100,000 invested in the stock market by the time you are 30, assuming historical 7% returns, this will grow to ~$1,150,000 by the time you are 65. $200,000 gets you to $2,300,000. With $0 in additional contributions.

Mentally this takes some pressure off by knowing that as long as you don’t touch that pot of money, and the market does what it has historically done (not a given), you are set. Having this peace of mind allows you to take more risks and pursue things that are maybe not the most financially lucrative. This allows you to align your life with your values and focus less on maximizing your financial output.

Risks

All of the methods above have some risks to them. Primarily that you are intentionally reducing income earning potential. Most people would agree that life isn’t just about making money, the challenge is having enough money to live the life that you truly want.

Before pursuing one of these strategies, having a strong financial foundation in place minimizes the risk and provides something to fall back to if things don’t end up going according to plan.

This is what gives you the flexibility and freedom to make decisions that might otherwise be too risky. Ultimately this means that getting your foundation in place as soon as possible is the most important thing to open up the option for these other methods.

This looks like having both a reasonable emergency fund and backing of other assets. The general recommendation for emergency funds is to have 3-6 months of living expenses readily available but for these strategies you may want to have 12+ months ready. 

You also want to have other assets that you can pull from if needed as well. Having assets that are compounding in the background can make sure that despite you not contributing to your investments, they are still growing while you are off pursuing other things.

Wrap Up

By having a general idea of how you would like to live, and utilizing some of the techniques mentioned above, you can prioritize what is most important to you and when. There is no free lunch. If you are going to cut back on your earning potential throughout your life you are going to need to make this up one way or another. Planning this out and understanding the trade-offs can make it all possible.

You can have your cake and eat it too.

If the traditional retirement path isn’t for you, set aside some time to think about what your life could look like. Make a plan and run the numbers. 

And if numbers aren’t your thing, that’s what we are here for.