Reshaping How We Think About Retirement
Even before I was out of college, I had formed a vision of what retirement would look like some day. I always thought the ultimate goal was time freedom. Retirement meant the ability to sit around most of the day, play golf, read books, and travel the world.
This narrow view of getting older and retiring to a life of blissful paradise was admittedly naive. The more life experience I gather(becoming a parent, watching grandparents and parents age, and working with others nearing or in retirement), I'm realizing that retirement is much more dynamic.
Sure, we all work hard and deserve some rest and relaxation, but none of us can avoid an end to our lives here on earth. If standard retirement age is between 65-70 years old, what will we do with our remaining time on earth? The life expectancy in the US is 78. However, those numbers are skewed a little: statistics from the Social Security Administration show that if you make it to age 30 you have about 60%(men), 70%(women) chance of making it to age 80. And 25%(men) 37%(women) of making it to age 90.
So, let's say I retire at 70 and live to 90. How much money will I spend in the last two decades of my life? I tend to suffer from Superman syndrome (thinking I'll always be healthy and be able to do the things I was able to do in my twenties). But, as the years pass in my thirties, I'm quickly being cured from that syndrome and the reality of my mortality on this earth has caused me to think about those later years of my life on a deeper level.
Financial Freedom
Financial freedom might be a better term than retirement. Retirement is simply the term used for when you quit working (assuming you've been at one place for awhile and won't be looking for another job). It signals the end of your work-for-money life. At the point when you have enough resources to cover your financial goals for your life and possibly beyond, you can retire from your work and do what you want with your time.
Calculating that date and time in which you have financial freedom is a complex formula for sure, but it requires first that you have a vision or idea of what you want to accomplish in the final act of your life. Being able to retire for some might mean simply being able to go to work on something they want to vs. something they have to for a paycheck. They might need some extra money, but no longer need an income level that they have had leading up to their retirement.
If retirement is more of a financial freedom moment in our lives, then we can attempt to reverse engineer what we might need to be doing now, so that we are prepared when that date arrives. It's the reason that we're encouraged to pay off debt, save early, save often, invest, insure, and grow our net worth.
If we view work as a means to an end (money, which helps us achieve other goals), then it's worth investing and pursuing work that both satisfies your monetary goals, but also fulfills you in deeper, more meaningful way.
Most will be in the working world for 40+ years. The dream job, or even a job you love might take years to get to, but the pursuit via education, skills training, conferences, or networking will pay off when a better job is found. This was true for me. I've liked other jobs in my adult life, but it wasn't until I found a job I loved that I had perspective on how much better it is to thrive with my work life vs. just survive.
Making Retirement Tangible Now Even When It's Far Away
From a monetary and life expectancy perspective, we tend to think of retirement as an abstract goal way too far in the future. But, if we can imagine ourselves at age 60, or mentally put ourselves in the shoes of someone who is approaching retirement now, it can help bring that moment closer to our current reality.
- What does a 60 year old look like?
- What's going on in their lives?
- How old are their kids?
- How old are their grand kids?
- How old would your kids be when you are 60?
- How is your health?
- How are your parents doing?
Are you doing what you need to do to be where you want to be at age 60?
Back to the superman syndrome... Its easy to think that we will always have our health and that the full extent of our retirement years we will have the freedom to do what we please and spend our hard earned money however we see fit. In reality, the last few decades of our spending might look more like smile when charted.
See post by Michael Kitces
Based on a three phase system to describe how our spending changes from age 60 to age 90: Go-go years (60-70), Slow-go years (70-80), and No-go years (80-90), we start our retirement years enjoying spending, but that gradually decreases as our health deteriorates. We spend the slow-go years spending less, staying at home and trying to cope with the health decline, and in the final years, our medical expenses cause our spending to go back up. (click the link above to see some interesting charts)
When I first read about this, it helped me reshape how I thought about retirement. I hadn't faced the fact that I wouldn't be able to travel the entire extent of my retirement years.
But, asking the questions above, helped me think deeper about those scenarios. It's given me a different perspective on the balance needed in spending and savings throughout our lives so that we don't get to retirement having saved everything and no experiences to remember. Or worse yet, saving it all along the way and then losing the ability (health) to do what we've been working toward.
I want a healthy balance of long-term goals and short-term goals to both enjoy life in later years, and make memories all along the way with valuable experiences with my wife and kids. We use the Family Playbook to help us on the year-to-year goals, and balance them with our long-term financial plan to make sure we are covering both the long-term and the short-term.
That's why following the baby steps is important. It's why getting out of debt is important. Finding a job you love is important. Saving for the future is important. Budgeting is important.
All of these goals can distill down into monthly dollars and find a place in your budget. And as you line up all that you want to achieve with your budget, you'll have to decide what is most important for your future. The budget is your list of priorities. If the budget is tight right now, it's likely made up of a short-term survival mode list of priorities. If there is abundance and all of your priorities are covered, fantastic, but make sure you've thought about the long-term as well as the short-term.