What will you do differently than your parents? I always think it’s interesting to see the changes from one generation to the next. While as parents, we tried to fix every wrong of our childhood and make the lives of our kids “perfect,” as we all know perfection doesn’t exist. So, yes our kids will do things different (and hopefully better) than we did!
And according to Gallup, the topic of retirement age is just one more big difference between the generations. While Baby Boomers (those born between 1946-1964) are now delaying retirement from age 57 to age 62, from current trends it appears millennials (those born between 1980-2000) expect to retire much younger than their parents.
This is an especially aggressive goal when you consider that the landscape for retirees has shifted greatly over the last few decades. Just 30-40 years ago, people worked at the same company for their entire career and were then rewarded with a salary for life. Their retirement pension and government benefits (aka Social Security) made for a fairly solid financial picture.
But take away company sponsored pensions, consider multiple different employers, increased life-expectancy, inflation rates, higher health care costs and uncertainty about the continuation of government payments and the retirement landscape has changed dramatically. While the average middle class employee can still make retirement a reality, it’s a challenge for sure. And will require some (if not all) of the tips below.
- Save & Invest. While I hate to waste your time with the obvious, it’s obvious because it’s one of the foundational pillars of retirement planning. If you want to retire, you’ve simply got to save and invest throughout your working career. While the experts disagree slightly on the numbers, the general guideline is that you should invest a minimum of 10-15% of your salary every year in some sort of retirement funding vehicle. And if you can’t quite get to that immediately, start with 5% and then each time you are given a raise, simply roll that money into your 401K or other retirement tool. Yes, it’s not quite as much fun as hitting the mall or the car dealer for that shiny new ride with your raise, but chances are 20 years from now you won’t remember what you bought but you will be glad you can afford to retire!
- Owe No One. While the chase to become debt-free is a hot topic pursued by those of all ages, the consideration is really important for those chasing retirement. Admittedly retirement looks different for everyone. Some want to travel extensively while others may want to learn new skills or hobbies that they haven’t had time to pursue. Regardless, it seems pretty obvious that you will have FAR more time to spend money in retirement than you did when you were working. And one of the surest ways to be able to afford the retirement you dream of is to be debt free before selling all your work clothes at the second-hand store. For more on the topic of becoming debt free, check out my earlier post, “6 Steps to Become Debt Free.”
- Start a Business. Between e-commerce and a truly global business environment, it has never been easier to find your entrepreneurial spirit. Now certainly not every business opportunity will lend itself well to a retirement schedule, but there are many more out there than you may initially think. The trick is to think small with little overhead. So for instance, you probably don’t want to take on a major lease payment and the salaries of 3-4 people. Instead, think of something you can manage by yourself and build during your last 2-5 years of full-time employment. Perhaps you start a free-lance graphic design business. Or maybe you start a quilting business. Regardless of the topic, think of your strengths and interests (and keep it simple!) and you may just be surprised how your dreams can become reality. A word of caution: The last thing you want to do is assume additional risk during retirement. So it’s important to have your business running smooth before you leave your day job!
- Work Part-time. While 20 years ago retirement signified a gold watch and a rocking chair, today’s landscape for retirees has changed completely. And inflation has obviously played a part. But an even bigger issue is the growing fear of living longer and outliving our retirement funds. While continued medical advances certainly make longer lives realistic, the tradeoff may well be a need to work part-time in retirement. For many, the thought of having “nothing” to do can be a little more than terrifying anyway, so working part-time can fill two purposes.
- Be one of the 20%. According to the United States Social Security Administration Office of Retirement & Disability Policy (now that’s a mouthful!), employer paid pension plans are definitely on the decline. “From 1980 through 2008, the proportion of private wage and salary workers participating in DB pension plans fell from 38 percent to 20 percent.” And in case you aren’t familiar with the term “DB” plan, it stands for Define Benefit which means that the benefit is 100% funded by the employer. This is contrasted by “DC Plans” or Defined Contribution where the employee subsidizes some part of the plan. So a 401K program where your employer may “match” a certain percentage of your contribution is considered a “DC” plan and is quickly becoming the norm. If you are one of the ever shrinking number of folks with a true employer sponsored Defined Benefit pension, then certainly your retirement funding efforts are in a considerably improved position.
6. Become a Landlord. One of the easiest ways to fund your retirement is to let someone else pay for it. And purchasing rental property is a great way to accomplish this! The trick is to find property that will rent for more than your expenses and monthly loan payment. By purchasing rental property during your working years, you should have the disposable income to cover gaps between renters. If you are interested in learning out more about this option, check out, “Retire Rich with Rentals: How to Enjoy Ongoing Cash Flow From Real Estate...So You Don't Have to Work Forever” by Kathy Fettke.
7. Buy Early. If you plan to purchase a retirement home somewhere, don’t wait to pick the spot and take the plunge until after you retire. Instead, watch the real estate market and take advantage of soft market conditions while you are still working. Approaching additional property with this mind-set allows you to buy at the proper time and also gives you the luxury of having the property paid for before you retire. As an added benefit, you can often combine the landlord concept mentioned above to get your retirement home paid for by others. While admittedly a bit more challenging than owning a rental property in your home town, you can definitely find services to help you make your “second home” a cash cow until you are ready to enjoy it full-time.
Regardless of your age, the ability to afford retirement doesn’t just “happen.” It takes focus, determination, years of planning and yes admittedly hard work. But for many, it’s the dream that gets us out of bed and out the door on Monday morning!
I’d love to hear from you. When do you plan to retire?