Retirement has a ring of finality to it, but this doesn’t need to be so. There are many careers in which retirement only means a transition out of that particular career and into something else. For example, the average retirement age of an NFL player is 30 and most elite gymnasts are retired by 19. To these athletes, retirement is just another phase of life.
Short careers. Many athletes have short careers because of the injuries and the performance drop off the body experiences as we age. Some athletes who made a huge amount of money have financial problems later in life. Perhaps it's because they live for the moment and strive for immediate peak performance in their next game or competition. I think this sort of short-term goal probably spreads to other facets of their lives, and many athletes don't plan for a future with less lucrative earnings. However, some athletes are able to successfully transition to other careers, and we should learn from them.
Career transition. Some athletes leverage their skill and knowledge to transition into a career in a related field. For example, Phil Jackson became a coach after his NBA career and led the Chicago Bulls and Los Angeles Lakers to many championships. During the recent downturn, many employees were laid off, but many also became self-employed and parlayed their knowledge and connections into consulting positions instead of remaining unemployed. These days, no job is secure and it is prudent to plan your next steps, even if you make good money and enjoy your current job.
Save and invest. Many personal finance experts recommend three to six months worth of emergency savings. This fund can be used as a cushion to prevent debt when emergencies such as a car accident arise. This amount of liquidity is good when you have a stable job, but we probably need more of a safety net during a career transition. That's why we need to invest in an after-tax account as well as retirement accounts.
Be prepared. Your 401(k) and other retirement accounts are very easy to set up, and they are the best way to maximize your earnings if your employer contributes to the investment. However, you may have to pay a penalty to access those accounts before retirement, so it’s important to invest in other accessible accounts as well. A savings account is a great place to keep your emergency savings, but the interest rate is low, so we shouldn't keep too much money there. We can get a better rate of return by putting extra savings into CDs, bonds, stocks, person-to-person lending, or other investments. In addition to an emergency savings account, you should consider keeping at least two years worth of expenses in various after-tax accounts. This will give you time to find a different job or career if something happens.
Over the past few years, we have seen that a career isn't a permanent placement. Companies will lay off their employees when the economy turns down, and there will always be younger replacements who will take on the job for less. Retirement from a career doesn't have to mean retirement from employment. Many people have two or more careers, and we should plan for the next phase even if things are going well.
Joe Udo is planning an exit strategy from his corporate job by reducing expenses and increasing passive income. He blogs about his journey to early retirement at Retire by 40.