Retirement is something that many fantasize about, but also causes stress and confusion because it seems so far off and unknown. At Abacus, instead of helping people race to the end of a career, we ask what they want their 60s, 70s, and beyond to look like. For some, that’s a life of travel, exercise, volunteer work, and relaxation. But for many, there’s an innate need to keep doing what they love – not to take a “traditional” retirement.
Defining Retirement For You
The truth is, the definition of retirement is as individual as the individuals themselves. Clients often say they want to be financially free around 60, but not necessarily retired. They want to reduce hours, try something new, have a job with less stress or just take a break to think about the next chapter.
So, instead of thinking of it as retirement, we encourage people to think of it more as “rewirement.” Below are several areas to consider when creating the definition of what rewirement means for you.
Should I Keep Working?
There are financial reasons to keep working beyond the traditional “retirement age” of 65 — you didn’t save enough, you need to wait longer for Social Security to start, you sabotaged your nest egg by getting out of the market during a downturn. There are also psychological reasons, such as:
- Keeping the brain and body stimulated, so physical and mental abilities stay stronger for longer.
- Having strong social connections and support systems.
- Expanding one’s sense of purpose, identity, and self-worth.
Post-career options that satisfy the desire for income, as well as psychological stimulation, include:
- Phased Retirement: Keep working in the same job, but dial down your hours to stay connected with your colleagues and train the next generation.
- Seasonal Work: This is perfect if you want to travel for long periods of time (teaching, tourism, professional sports, etc.).
- Home Care/Patient Advocate: You might be required to have a year or so of training, but the rewards can be fulfilling if caring for others is something you’re passionate about!
- Teaching and Tutoring: Credentials might be needed, so connect with your local school or college first.
- Nonprofit Consulting: Nonprofits are often terribly run “businesses,” so if you have business skills, they could use your help!
- Tourism: Create joyful experiences and memories for others as a tour guide, shuttle driver, travel agent, or national park worker.
- Craftapreneur: Sites such as etsy.com offer an online marketplace for things you’ve always wanted to create.
If you do wish to keep working, you should be aware of any planning you’ll need to realize your goal. There may be a certification or licensing you’ll need to pursue to set up eventual success.
You may want or need to build a social media network to branch out. You may have to consider moving to a different (or more affordable) city. What you don’t have to do is be exclusively focused on the nest egg “number” you need to retire. The most important thing is to figure out what experiences you want later in life and point your financial plan towards that.
Simplify Your Financial Life
Part of rewirement is finding ways to simplify your life. Rental properties you may have acquired ten to be the low-hanging fruit of financial life simplification. They can often become negative cash flow sources due to unusually high annual expenses, which doesn’t even begin to cover the time investment.
If you have neither the time nor the desire to be a skilled landlord or private real estate investor, selling your property and folding the proceeds into your portfolio of publicly traded stocks, real estate, and bonds can be liberating.
A similar approach applies to the costs associated with owning two houses for personal use. Second homes usually end up being a very expensive way to enjoy some time away, no matter how many nights you stay in them. Winnowing down to a single home in an affordable city that makes you happy is another great option.
Stretch Your Savings
If you are in a position to retire early (closer to 60), there are other considerations before you decide which of your investment accounts you’ll withdraw from to replace your income. You could have a full decade until you choose to receive Social Security and have to start your IRA required minimum distributions (RMDs), and this can have enormous implications on your tax burden.
Until then, you may have several choices about where your cash will come from. If you pull from traditional investment accounts (trust, joint, individual), a portion of every withdrawal may be subject to capital gains rates. If you pull from your IRA, you’ll be subject to ordinary income taxes on every dollar you take out. But there’s also a tax-free alternative: tapping the equity in your house.
If you want to refinance in order to get some cash from your house (and perhaps lower your interest rate), do it while your income is current, high, and verifiable–not after you retire from your current career. This is also a good rule for buying property you plan to move into when you retire. If you’re curious how much income you’ll need to qualify, here’s a calculator you can play with.
While you’re still working and qualified you can also establish a Home Equity Line Of Credit (HELOC), but you don’t have to touch it. A HELOC could be used as an emergency fund–a place to get cash in the event of a large surprise expense or essential home repair. Having a HELOC gives you the flexibility of leaving your investment portfolio alone and borrowing at a potentially lower rate if conditions are right.
Borrowing from your home in your early retirement years to avoid making portfolio withdrawals during retirement sounds counterintuitive. Conventional wisdom says we should be debt-free during our retirement years, but there are always exceptions. This strategy is intended for the tax-sensitive person who intends to eventually sell or downsize their home. In short, this strategy is not for everyone and should be carefully discussed with a financial advisor before taking any action.
The Authentic, Future You
Getting your house(s) in order doesn’t necessarily mean you can just retire. Having fewer personal expenses and a larger nest egg certainly helps, but you may still have to work a part-time schedule for another decade or so to fully realize your true values and financial goals. However, having a part-time cushion means you can take your time selecting work that will produce a high level of joy and flexibility, while allowing you more time to travel when you’re still young(er) and healthy. You may even be able to afford to take a year off to relax and plan for the next chapter.
Regardless of when you decide or what it looks like, rewirement is the culmination of everything you’ve worked for. Ask yourself what truly fuels your happiness, and then reach out to an Abacus advisor today to help you redefine what the rest of your life means to you.