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)
10 thoughts on “Why retire?”
I look forward to the comments on this post. My dad (65) retired from his job as an exterminator in a food processing plant this year, partly for health reasons (it allows them to leave midwestern winters during the worst of my mom’s bronchitis) and partly due to the physical demands of the job. He was one of the oldest guys in the plant- not everyone retains the balance to walk along rail cars taking samples at 65.
Mental acuity drops significantly around 50 or 60 and I saw this affecting engineering colleagues who tried to work into their 60’s- when layoffs came, their lack of ability to keep track of tons of new information and lots of detail hurt their performance. While they might have been laid off in a stable industry, when 20-40% of jobs were being cut, many of them were affected. They were also, generally, unable to get comparable jobs.
For most people, working in retirement will mean a different kind of work than in youth. If I’m widowed (my husband’s father died young), I’ve pondered being a “group parent” at a home for mentally disabled people, part of a rotating group of people who can provide stability in their lives but who won’t cause an environmental disaster if I forget to close a valve.
This is one of those areas where I agree with you in principal but I think Twin Mom hits it on the head for most Americans.
It really depends on what you do (and what you’ve been doing for the last 30 years).
It’s something we’re seeing in our family play out: my father in law retired last year at 60 after working on the railroad for the last 30 years. He’s tired. It would have made a great deal of financial sense to continue working 6 months longer until my MIL hit 60 as well and while that was the original plan, when it came down to it he finished up the week after his birthday. Working around the clock in a highly physical job for all those years was certainly not something he was going to continue and in all honesty, he doesn’t have the energy to do much else.
My father on the hand, is an attorney. He plans to work into his 70s and should life at the firm become too taxing, he could easily transition into a professorship or something of that nature. He’s worked hard his whole life, but it’s simply a different type of work.
It’s a great concept to plan for a second career, but I think it really depends on what people do for the first one–and how their health holds up– that makes or breaks the retirement years.
@Calee and Twin mom – this is why we have to rethink work along with retirement. There are many people who do physically demanding or tiring jobs that they can’t keep doing into old age. On the other hand, many of these people (and many white collar workers too) simply are not going to have the cash to support living as long as people are living. So what are the other options? Since seniors have some income support (in the form of Social Security in the US, perhaps some pension, some savings) you don’t necessarily have to maximize revenue. But people are going to need something.
I think we’ll return to multigenerational living. If I can live independently until 90, my grandchildren should be mostly out of the house and I can hopefully get a room with my children. I realize I’m in the minority, with a genetic history to suggest I can live independently until at least 90 and to live with some assistance until 95 or 100.
@Twin mom- but my guess is you’ll be less in the minority as time goes on. If people leave the workforce at 62, and live to 92, this is a long time to have no new income coming in. Especially if you didn’t work continuously from age 22 to 62, as many people haven’t for a variety of reasons. Even with compound interest and time on your side, it takes a lot of capital to live for 30 years or more on interest.
I think there can be a healthy balance between labor and leisure during retirement. Many retirees (I included) find that we need a source of intellectual stimulation. Thus we work part-time. Bill
@Bill – agreed. There are reasons to work beyond a paycheck, and mental stimulation is a big one. So is socializing. You don’t have to work 40 hours a week, but a few hours can give structure and purpose to a day.
I can’t seem to formulate my ideas on this into a coherent comment. I’ve had a post on the subject brewing for ages, but it hasn’t come together, either.
I’ve realized that my “retirement” will look nothing like that my parents are enjoying- they both have full pensions from government jobs.
But I haven’t really figured out what I’m aiming for yet, I guess. I know I want time and money to travel, and my current career gives me money, but not time. So in the meantime, we save as much as we can, on the principle that money always give you more options.
But I think the point that TwinMom and Calee make about physically demanding jobs is a good one.
I guess I’ve accepted that the old system is gone, but I’m not that impressed with the new system, even if it will probably work out OK for me.
Like Cloud, I have many mixed thoughts and feelings. I like my work, but there are toxic people here who make what could be a rewarding job very emotionally draining. I dream of working from home, or part-time–still contributing, but not interacting with people who scream (yes, scream) and who otherwise have the emotional maturity of a toddler.
I also have tremendous insecurities about money (my parents were the Depression-era generation). I’m not sure I ever would have “enough” to feel I wouldn’t need a paycheck of some kind coming in, and Social Security is not looking too secure for my generation. So I continue to show up for work, and will for as long as my boss allows me to, while dreaming of a civil workplace where I can set my own hours and work with courteous people.
@Wendy- Thanks for your comment! I guess the question is how you can combine the “stuff” of your current job, which you like, with a better work environment — ideally a flexible, work-from-home situation. I am not sure if there is another company in the same space, or some way to do consulting but a toxic situation is not good for anyone.