The notion of retirement is a throwback to a bygone era. Traditionally, we work hard until we reach age 65, and then we stop working cold turkey. At least that’s the theory. As life expectancy increases, however, the amount of money we need at retirement increases, for many to unattainable levels. The result is “retirees” who continue to work, often in low-paying hourly jobs in the retail or food industries. Something is broken.
The past may shed some light on the problem. Imagine a time when life expectancy was just 47. Most people worked until they died. Because of limited medical care, most people died quickly when they became acutely ill. The result was that the average time spent in retirement was just 7 percent of adulthood or about three years. That was life in the United States in the early 20th century.
As life expectancy increased and the depths of the depression set in, a funny thing happened. The government needed older works to retire to make way for younger folks desperate for work. Enter the passage of the Social Security Act in 1935. With the stroke of the Presidential pen, retirement as we know it was born. While the work until you’re 65 and then retire mentality may have worked in 1935, it’s not exactly a perfect fit in 2013.
Today life expectancy is 76 years. For those who make it to age 65, they can expect to live another 18 to 20 years on average. The result is that in 2013, one can easily spend 20 years or more in retirement. The Social Security Act of 1935 was never designed to handle such a load.
So perhaps it’s time to rethink the traditional notions of retirement. After all, one’s 65th birthday is not an inherently magical moment requiring a gold watch, a bad cake and a send off into our golden years. Furthermore, the incredible advance of technology since 1935 (and even since 1990) and the shift to a service-oriented economy gives those 65 and older ample opportunities in the workforce. It’s time for a change.
If the concept of retirement is in need of a facelift, what exactly should it look like? The answer, it seems to me, is up to each individual. Today we have the flexibility to design retirement in many different ways. The key, however, is to make that design part of our retirement planning. Retirement planning shouldn’t be limited to a spreadsheet of numbers and a 4 percent withdrawal rate.
For some, like my mom, retirement means working in a job she loved until 70 (she was a teacher), and then continuing to work part-time in retirement as a substitute teacher. For others, retirement may mean starting a business you’ve always dreamed of that will allow you to pursue a hobby or passion. For me, retirement means running an online business that allows me to work from anywhere and at anytime.
Perhaps the word “retirement” is the wrong one to describe these scenarios. Some people call them “lifestyle businesses.” Personally, I like Retirement 2.0. Whatever you want to call it, Retirement 2.0 requires advance planning. If we simply wait until the day after we stop working to figure out what we want to do with the rest of our lives, it may be too late.
Advance planning can help in several ways. For example, many people can start a side business they love while still working full-time. When they do retire from their job, they have the side business in place to generate income. Others may want to pursue additional training or education to enable them to pursue an alternative career later in life. The key is that with the right planning, the transition can be seamless.
There are those who will retire at 65 in the traditional sense. But perhaps it’s time to change our expectations of retirement and work. When you do a job you love, is doesn’t have to feel like work.
Rob Berger is the founder of the personal finance blog, the Dough Roller.