Will You Ever Be Able to Retire?
If you listen to the experts and pundits, you've heard that retirement as we know it is in serious trouble — and the current workforce can expect to work until they get too sick or too dead to keep going. (See also: What's Your Retirement Number?)
It's enough to make you want to heave some golf clubs through a window, since you're obviously never going to get to use them in retirement.
But both the conventional wisdom and the number crunching about retirement don't tell the entire story. Yes, the retirement that our grandparents enjoyed may be out of our grasp — but that doesn't mean your future is an endless landscape of cubicle-dwelling until you die. Here's what you need to know about retirement in the new millennium.
Traditional Retirement Didn't Account for Longevity
While it may seem as though retirement is an age-old practice, the fact of the matter is that it's a relatively new phenomenon. Before the 20th century, people expected to work until they couldn't anymore — and at that point their families would take care of them. That changed in the United States when the Social Security Administration was established in 1935, and the age for retirement was set at 65.
Except even then, the expectations for retirement were still largely the same — in 1935, the average American life expectancy was all of 61.7 years. Social Security was intended to keep the lucky few who lived into their late 60s and beyond from experiencing abject poverty.
Even in the 1960s and 1970s — the golden age of defined-benefit pensions for workers and actual time for leisure in retirement — life expectancy only rose to 73.9 years. A 65-year-old retiree in those days didn't have 15 to 30 years ahead of them.
Now that the average American woman can expect to live to her 80s, it's pretty clear that retirement as our grandparents enjoyed it is too expensive for employers and the government to pay for entirely. (See also: How to Avoid Running Out of Money in Retirement)
What We Can Do
First, let's take a deep breath.
For some very good reasons, retirement tends to be an issue that makes pundits jump up and down waving their arms and screaming that the sky is falling. That's why it's important for all of us to take a step back and find some perspective.
Yes, your retirement is going to be expensive, self-funded, and later than you might like — but that's all because you're going to have a long and healthy life. The ripe old age of 65 used to be ancient. Now, there's no reason it can't be the prime of life.
That being said, planning on working for fifty years between college graduation and retirement is probably not exactly what you want. Here are some concrete steps you can take to deal with the prospect of a late retirement. (See also: 6 Steps to Boost Your Retirement Savings Fast)
Make a Plan
Many of us are intimidated by the idea of meeting with a financial advisor or coming up with a financial plan, thinking that these things are only for the Scrooge McDucks of the world.
But everyone needs a financial plan, no matter their income level. According to Laurie Nordquist, head of Wells Fargo Institutional Retirement and Trust, "if [workers] had a financial plan, they saved three times more than those without a plan."
So if you hope to retire earlier than your 70s — or just early, period — you can only figure out how to do so if you make a plan. Sit down with a trusted financial advisor and determine how much you will need each year in retirement to live comfortably and how much you need to set aside to get there. Then follow your plan.
If that sounds simple, that's because it is. But just because making a retirement plan is simple does not mean that it's easy.
Kill Off Your Debt Before It Kills Your Retirement
NerdWallet recently did the math on what Millennials can expect for retirement and came up with some depressing numbers: today's college graduates won't be able to retire until they are 73 years old — mostly because of student loans. With a median student loan burden of $23,300, new grads are losing years of retirement savings and compound interest to opportunity cost. (See also: Retirement Planning If You're Under 30)
And it's not just college grads with too-large student loans who are victims of opportunity cost. Any major debt you carry offers such costs, because the money you send to your loan could otherwise be invested and earn compound interest. NerdWallet calculated that the opportunity cost of a $23,300 loan is $115,096 by the time the borrower reaches retirement.
So if you are currently carrying debt, what can you do to keep the opportunity costs from ruining your retirement dreams?
Pay It Down...
The first option is to send additional money to your loan in order to decrease your loan term and your total interest paid. A faster debt payoff allows you to send more money to your retirement account sooner, and that can help mitigate your opportunity costs. (See also: 15 Ways to Pay Off Student Loans Faster)
...And Pay Your Retirement Fund
However, since you will still potentially lose out on the compound interest while using this debt payoff strategy, it might actually make more sense to split your focus. Instead of only working to get your debt paid off as quickly as possible, make your regular payments to your loan in addition to contributing the same amount to your retirement. Even though you will not reduce your loan term this way, you will still be able to take advantage of early compound interest, which can make an enormous difference in your retirement bottom line.
Redefine Retirement for Yourself
Another thing that the pundits don't tell you when they're frothing at the mouth about the death of retirement is exactly how they're defining retirement.
Generally, that's because they're using the most generous definition of retirement possible — the kind of retirement where you enjoy endless days on the golf course after you quit working no later than age 65. And believe me, that definition of retirement sounds lovely.
But if you had to choose between modifying that definition and no retirement at all, wouldn't you prefer the rewrite?
Here are four common ways you can redefine retirement to make sure you can afford it.
1. Plan on Working Part-Time or as a Freelancer
If you plan your retirement to be the end of your primary career, rather than the end of work itself, then you will reduce the burden on your nest egg.
2. Move to a Less Expensive Area
Relocating to an area with a lower cost of living can potentially mean the difference between pinching pennies and living comfortably in retirement. An added bonus is that you can potentially add the equity you get from selling your house for this move to your nest egg. (See also: America's Awesomest Cheap Cities)
3. Become a Frugal Hacker in Retirement
Cutting your budget to the bone will allow you to extend the life of your nest egg, and potentially let you retire earlier. Once you are no longer working, you will have the time to devote to the sorts of money-saving activities that keep spending in check.
4. Work Longer
If you absolutely need your retirement to look like the ones in the commercials, then you might just need to scale back your assumptions on when you can retire. Working a few more years past your preferred retirement date can help ensure that your retirement income will cover the experience you want.
Love Your Career
Possibly the most important thing to remember when planning your retirement is that you don't have to wait until then for your life to start. That's why you should care about what you do each day — otherwise your life becomes an endless waiting game: waiting for lunch, for the weekend, for your next vacation, for retirement. And it would be awfully sad to spend your entire career waiting for the moment when you can stop working.
Finding the work that you enjoy doing and will do well — while you plan for that day in the future when you might want to retire — is how you can create happier life overall for yourself. No need to wait for retirement.