Some Thoughts on Retirement Readiness
Deciding when to retire is one of the biggest decisions you’ll make. And it’s hard! Understandably, most people first look to their finances: Can I afford to retire? What’s my target number and am I there yet, as if it were a destination. Don’t get me wrong, your financial situation is a huge part of the answer about retirement readiness but perhaps more important is the personal side of the question. Are you actually ready to retire?
This is a moving-target sort of question because our assumptions about what retirement means are often based on a past that no longer exists. For example and according to the Bureau of Labor Statistics, in 1950 you’d likely work well into your 60’s but had a life expectancy of maybe early-70’s, so it was work, work, work, followed by a gold watch and a relatively short retirement. That’s a paradigm that many still focus on today. Manufacturing made up almost a third of our economy back then, so a good rest was often needed. You had some personal savings and often a pension since at least a quarter (and half by 1970, according to the BLS) of the working population had one. And Social Security had only begun sending payments ten years before, so that was a relatively new phenomenon that provided extra security.
Fast-forward to the present and we’re working and living longer. At least on average in the US our life expectancy is now in the late-70s, although I usually stress-test plans for people out to early-90s and beyond. I actually can’t recall the last time someone wanted me to use a late-70’s life expectancy. This means we’re planning on typical retirement timeframes of 20 to 30 years, not the five years or so of the past.
But do we want to “retire” that long? Do we need to? We’re better off financially than our parents and grandparents were. We have more assets and our higher incomes go farther, even adjusted for inflation. For example, according to the American Enterprise Institute, it took nearly 100 hours of work earning average wages to a buy a washing machine in 1959 and nearly 168 to buy a fridge – today it’s a small fraction of that. However, one could argue that we feel less financially secure. DIY 401(k) plans have supplanted pensions as a retirement mainstay (less than 15% of working Americans have a pension now) and the Social Security system is a nailbiter. Whatever the combination of reasons, we’ve reversed a decades-long trend persisting into the 90’s showing the labor force participation rate declining steadily as people aged past their mid-fifties. According to the BLS, those age 55 and older increased their participation rate from 2002 through 2022, and this is projected to continue through 2032.
Even though there are movements extolling the virtues of retiring earlier, people still have a drive to work. Our work gets into our blood and this helps make it challenging to contemplate swapping decades of muscle memory for… what exactly? Some people rush into retirement only to find they never answered that question for themselves while others keep working for the same reason. Could we somehow work better for longer, instead of working until burnout? It’s tough to know the right answer because, in many ways, we don’t have a framework for figuring out what is, and should be, a very personal question.
Okay, let me get back to my point this morning before digressing too much farther. Here are some questions that might help.
What does retirement mean to you?
Have you ever practiced retirement with a sabbatical, or even an extended vacation? Long enough for the “vacation” to start wearing off.
If you had all the time in the world, how would you spend it?
How would you have answered these questions five years ago and how does that differ from today? What about five years from now? How would Future You answer?
Here’s a trio of stories from the Wall Street Journal that make me think of how we’re all redefining what it means to work and to retire as our economy and workplace evolves. The Journal has a paywall, so let me know if you’d like any of these and can’t access them and I’ll send them to you from my own account.
The first article deals with impressions of a WSJ journalist following her sabbatical.
The second talks about retirement readiness from a personal perspective.
And the third article covers how focus work, or what’s referred to as “slow productivity”, is probably better for everybody compared with the frantic nature of multitasking that we’ve been trained to love and hate. Personally, I think if more of us could do this we’d get more enjoyment from our work, and probably be able to work longer because it would be less of a grind. And this type of work is likely to be valued more in the economy with the emergence of AI that will likely absorb rote tasks in favor of higher value work being done by highly-skilled and experienced workers. It also lends itself to project work, or other forms of consulting services that quite a few retirees end up doing (and enjoying!) for their former employers.
Have questions? Ask us. We can help.
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