The markets have been rallying since October, slowly building a cushion around shaken nest eggs. That sounds like good news for baby boomers approaching retirement age. With 401ks bolstered by a bull run, the question of at what age people can afford to retire no longer returns an answer of “never” on financial advisors’ handy calculators.
But here’s a different question: why are we so into the idea of retirement in the first place?
The answer seems obvious. Who wouldn’t prefer leisure to labor? Almost everyone talks of wanting to retire someday, and pretty much every major financial decision the experts tell us to make is designed with this goal in mind. We talk of building up wealth so that at some point we can live off the interest or perhaps 4 percent per year, preferably when we’re young enough to enjoy ourselves. Ads for financial planning firms feature mature but definitely not decrepit couples, purposefully staring at whatever ocean vista their wealth has afforded them.
Here, however, is the reason to reconsider retirement. First, the math is fuzzy. And second, it’s unclear that a life of leisure is desirable as it sounds.
First, the math. It’s a staple of personal finance literature to show how saving small amounts over 40 years produces mind-boggling returns. Invest $3000 a year at 8 percent a year, and you get get roughly $900,000. Fair enough -- though $3000 was a third of the average family’s income 40 years ago, in 1972. Not exactly the kind of cash even a diligent young person could put away by cutting out a few lattes. And, of course, many people haven’t managed to save even latte money. The Employee Benefit Research Institute’s annual Retirement Confidence Survey says only 19 percent of workers aged 55-plus have over $250,000 in assets. Living off 4% of $250,000, plus Social Security, is possible, but not exactly ocean vista style. Even living off 4% of $1,000,000 doesn’t make for a terribly rich life. In an era of longer lives, it’s quite difficult to build up enough assets in 30-40 years of working to support 30 (and potentially 40) years of not working in particular comfort.
But even if the math comes out right for you, here’s another thought. Surveys of Americans find that two thirds of adults say they would continue to work even if they won the lottery. This question has been asked in many surveys over the years, and stubborn majorities of us continue to proclaim we would not want to be idly rich.
I’ve been scratching my head trying to figure out how this fact fits in with our retirement fixation. Building up $5 million in retirement savings and winning $5 million in the lottery would enable the exact same life.
So why do we dream of a leisurely retirement when we wouldn’t use a windfall to live a life of leisure now? The best explanation I can see is that people believe if they won the lottery and became financially secure they’d be able to do work they loved in a flexible way. They wouldn’t have to think about money first. They could seek out work that offered meaning and pleasure.
If that is the case, though, then the lure of retirement is not a statement on work in general. It is about quitting the work one is currently doing. So perhaps we are asking the wrong question. Rather than calculating how many lattes we must forgo to live off interest at age 65, why not put that same mental energy into figuring out what kind of work we wouldn’t want to retire from?
This is a far more productive line of thought. The economy has changed to offer many ways of working that don’t involve reporting to an office, factory or store from 9 to 5. The website builder Weebly reports that a surprisingly high proportion of its customers are seniors starting online businesses. Work can be creative (witness the sellers on Etsy or Zazzle), and can be fulfilling -- a part-time job at a non-profit comes to mind. The good thing about having some savings and Social Security is that generating even a small income as a senior goes a long way. Earning $10,000 a year is $250,000 you don’t need to have in savings. There’s also some evidence that the mental stimulation of a job can keep seniors in better health. While we think of retirement as a time to travel the world and golf, those activities take money. Living off a dwindling nest egg takes the fun out of them. Freelance 20 hours a week, though, and you can golf and pay your bills.
To be sure, there comes a point when none of us will be physically able to work in any fashion. But in an era when healthy people can live to age 90 or more, that’s a lot fewer years than we think about under the rubric of retirement. Happy people know that “work” need not be something we dread or merely deign to do. Indeed, if you choose the right work now, retirement itself won’t seem nearly so alluring. After all, you can run that online business while staring at that ocean vista -- and have a much easier time affording it.
photo courtesy flickr user Moyan_Brenn (I'm Back)