LEVERS TO LENGTHEN RETIREMENT

For many, retirement is a stage of life far into the future. It may be a long time before you officially retire. Even when someone is on the precipice of retirement, it can still seem entirely unreachable.

Traditionally retirement starts around age 65 to 72, and then continues for another 15 to 20 years or so. At The Wealth Span, we already assume that retirement may be longer than previously expected. Improved well-being and health span may allow for a larger percentage of life to be spent in retirement.

For some people, there may be no point in waiting until age 65. The F.I.R.E. movement popularized in the previous decade by the likes of Mr. Money Mustache and The Financial Samurai provides an alternative to traditional retirement. Financial independence, simply put, is the ability to do almost anything you want without having to depend on a regular 9 to 5 job. People who accomplish this goal will be “retired” for 30 or more years.

Whether you aspire to the lofty goals and challenges of the F.I.R.E community or simply want to live happily in retirement, there are certain levers available to pull. Any of these extend the time you spend enjoying financial independence or retirement.

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Live Longer

This is a baseline assumption at The Wealth Span. It is something nobody can control, but everyone should make the effort to live a healthy lifestyle to increase the likelihood of living longer. Once again, there are no guarantees. Hopefully though, intentional steps can tip the scale in our favor.

There is no need to give medical advice or guidance at this point. Although the topics are immensely interesting to me, I’ll leave most conjecture and guidance on health to the medical community. Loosely speaking, we all know what needs to be accomplished to live a healthier lifestyle.

The Pareto Principle (also known as the “80/20 Rule”) also applies to health and longevity. 

A few simple changes to one’s lifestyle could be impactful.

Of course, the math works. Living longer (and more importantly extending the active, healthy portion of one’s life) naturally expands the time spent in retirement. Nobody would complain about a few extra years spending time traveling the world, forming more memories with loved ones, and maintaining a sense of purpose and autonomy.

Spend Less

There are two components of your personal income statement: revenue (your income) and expenses. You can control your income to a degree. It may seem as though expenses can be carefully managed, although some expenses are more “fixed” than we realize. Health insurance, car insurance, taxes, and the like will always be a part of life.

The expense portion is often the focus of talking heads in the personal finance industry. “Skip the coffee,” or “Buy the cheaper jeans,” are common mantras on podcasts/radio.

The budget or general expense tracking is top-of-mind for many folks because of its accessibility (i.e., we can see our checking account at any moment) and its functionality (i.e., we can scan, swipe, or tap a card anywhere for anything).

This is often the most emphasized lever in the F.I.R.E. community. Save as much as possible as soon as possible. Once you reach the goal and make a few assumptions, then spend as little as possible. The truth is, expenses can only be managed to a degree without sacrificing many other (important) parts of life.

Most people don’t ask themselves, “What is the least amount of money I can spend to support my lifestyle in retirement?” For many, one of the biggest goals is to become financially independent so that the money can be used for travel, generosity, or other purposes.

Although there is wisdom in carefully managing your budget and expenses, minimizing expenses at the cost of these other retirement goals is a rarely cited goal.

This lever is always an option but best utilized in moderation.

Save Sooner or More

There’s abundant evidence that compound interest is the greatest tool in an individual investor’s tool box. The best way to maximize the effects of compounding is to extend its runway (e.g., allow time to pass).

A dollar in your 20s has immense potential. It is a common rebuff and has been said by me (and others) over and over again. It is worth saying though because your 20s will be the most important investing decade of your entire life.

You will be able to save fewer total dollars compared to someone starting later in life. These early contributions can grow significantly as compounding takes hold.

Whether it be reaching financial independence sooner or extending a traditional retirement, the natural growth over an extended period of time could lead to an earlier and longer retirement.

If you missed the opportunities to start saving in your 20s, all is not lost. The best time to start is now!

Although it is sometimes difficult to prioritize saving and investing (especially in the middle stages of life), significantly increasing contributions to retirement accounts could allow you to catch up. There are options available to you even if you started later than you would like.

The easier lever to pull is prioritizing saving and investing earlier. There isn’t a famous investor, financial independence success story, or regular retiree who regrets saving early in life.

If you can, save sooner rather than later. If you are forced to save later or have missed previous opportunities, plan on saving additional funds in an attempt to catch up.

Work a Little

Sometimes, retirement is viewed as a distant and significant change/adaptation. Perhaps it is better to view a lifestyle of financial independence or retirement as a transition.

Many people do not enjoy their work and view their job as a means to an end. The hours spent in the office or on the job are dreaded, but in order to march on toward retirement they sacrifice entire years (or even decades) of life to ultimately reach the goal. They assume that in order to retire, they must maintain their income for as long as possible and, in some cases, be miserable.

In retirement, there are different sources of income. Most people think about pulling from their nest egg (total invested assets) to support their lifestyle in retirement but may not consider sources of income like rental property proceeds, eventually social security, and other non-traditional sources.

Working in a part-time capacity in a job you might actually enjoy is another way to earn income. This could easily extend the amount of time you spend in retirement. The income you earn would replace some of the income pulled from retirement accounts.

Many do not consider this option or its benefits. The earlier retirement is clearly beneficial, but there is also a sense of purpose and community derived from working. This shouldn’t be overlooked.

If you love to power wash driveways, start a side hustle to replace some income. If you spent a career in corporate accounting, find a gig working for a church or other non-profit doing bookkeeping.

Don’t do something you hate but find something you actually enjoy. There are more part-time careers available than ever before and even a small amount of additional income can make a significant difference.

The cake at the retirement party isn’t worth the wait. And anyone, it might be better to have two cakes than one!

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Nearly everyone would choose a longer retirement, or at least the optionality to retire by being financially independent. The length of your retirement is within your control! By utilizing any or all of these levers, you are one step closer to a long and happy retirement.

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