I think we'll all agree that you can't be a little bit pregnant, or perhaps even a little bit alive. Some things are simply this or that, with no gray areas in between. The traditional concept of retirement fits that mold, too: if you're not retired, then you're working full-time. If you're retired, you're not working at all; you're probably playing golf or gardening or traveling instead.
Times have changed, though. Here are some factors to keep in mind:
- In the past, many people relied on traditional, defined-benefit pensions, which would pay them a living "wage" for the rest of their lives. Now, such pensions are going the way of the saber-toothed tiger and the dodo bird.
- People are living longer than before, and they're often retiring earlier than before, leaving some of them with retirements that will be twice as long as those of a generation or two earlier, or even longer. Such longer retirements will require more money.
- Many people have not adequately saved for retirement. Some people haven't even thought about it, since it makes them wince. As a result, a lot of folks aren't using 401(k) plans and IRAs at all or as effectively as they can. (Let us help you with those, with our Rule Your Retirement newsletter, our 401(k) nook, and our IRA Center.)
Put such factors together, and it's not a pretty picture. People need more resources to support longer retirements, yet they're less prepared for retirement than ever. Worse still, many retirees end up finding retirement boring.
Fortunately, there's a solution to this mess: phased retirement.
Phasing it in
In other words, consider not just pulling out of the workforce completely at a certain age. Think about whether you might benefit from working a little bit during the first few years of your retirement.
Let me be even bolder: Consider delaying your retirement completely by a few years. In "Two More Years to a Better Retirement," I explained how powerful two additional years of work can be in significantly boosting your bottom line. It can add several hundred thousand dollars to your all-important nest egg!
Once you start retirement, though, you might do it gradually. In the book Your Retirement, Your Way, Alan Bernstein and John Trauth argue that phased retirements can serve both retirees and businesses well. Here's some of what they wrote.
- "A study by Merrill Lynch projected that individuals who work just 30% of the time during the first five years of retirement will, at the end of that period, have a retirement portfolio 40% larger than they would have had otherwise. And with fewer years remaining, that portfolio can support a higher lifestyle for the rest of their lives."
- "Studies have shown that most people don't want a life of pure leisure. Nearly half of today's retirees report being bored or restless."
- "As these baby boomers retire, business will be faced with a shortfall of manpower and intellectual firepower unprecedented in U.S. history. ... The issue confronting U.S. business will be: How do we make retirement a choice which includes a continued presence in the workforce? The response to date from forward-looking companies has been the concept of phased retirement, meaning continuing to work, but in a reduced manner."
Making it work
Of course, there are lots of ways to go about enjoying a phased retirement. If you and your employer are happy with each other, you might be able to strike a deal. If not, you might look at the first phase of your retirement as a new beginning, a chance to explore a new work arena. Remember that you might well have 10 or 20 years to devote to a new career, if it clicks with you.
Some companies that AARP has highlighted in recent years as best for employees older than 50 include Deere
Overall, though, remember that your retirement isn't likely to be as good as it could be unless you take some action now. You need to do some planning. You need to estimate how much you'll need in retirement, how much you have now, how much more you can save and invest, how much it is likely to grow to, how to invest it most effectively, how to minimize taxes, and so on.
Let us help you with that, through our Rule Your Retirement newsletter service -- it's prepared by Robert Brokamp, a smart and witty guy who distills what you really need to know into a manageable volume each month. A free trial will give you full access to all past issues. You'll gain valuable tips and even read how some folks have retired early and well.
The following articles may also be of interest:
Here's to a happy retirement!