Three Alternatives to a Traditional Retirement

Retirement means working until your mid-60s, moving to Florida and long afternoons on the golf course – right? Not necessarily. Not everyone wants a traditional retirement, but it can be tough to visualize a different path when society seems to expect you to work for four decades and bow out when you’re eligible for Social Security.

The good news is with a careful plan in place, retirement can be whatever you want it to be. Here’s a look at three alternatives to a traditional retirement and the first steps people can take down each path.

Early Retirement

I’ve been working as a software developer at tech companies around Seattle for a few years. It’s fine, but it’s definitely not how I want to spend my days. I’d rather be climbing – honestly. I’d be willing to give up my condo in the city so I could travel the world and hit big summits while I’m strong enough to do them. How do I save enough so I can retire as early as possible and start exploring?

David, 32

More and more people are planning to clock out of the workforce before they hit retirement age – in some cases, decades earlier. Early retirement is becoming a more common financial goal, especially among millennials. It’s been popularized by the FIRE movement, which promotes saving, spending and investing habits that lead to financial independence and the ability to retire early. So, is it really possible to retire in your 30s or 40s? It can be done – but it takes sacrifice, planning and discipline.

David’s first steps toward early retirement

1. Plan for a long retirement. If David wants to stop working at 40, that means he needs to come up with 50 years’ worth of assets to cover his living, medical and other expenses during his retirement.
2. Revisit your personal budget. To save enough for an early retirement, David likely needs to spend a lot less or save a lot more. Many people pursuing early retirement commit to a very frugal lifestyle to realize their ultimate goal – sometimes forgoing expenses like new cars, a new home or vacations for years in order to save enough for retirement.
3. Decide how to handle healthcare costs, especially insurance. People who retire before 65 need to find another way to cover their medical, hospitalization and prescription needs before becoming eligible for Medicare. David should take a look at his state’s healthcare exchanges to get a sense of the available options and investigate policies from private insurers as well.
4. Determine when to take retirement savings. David could get a Social Security benefit as early as age 62, but his benefit will be cut if he takes it before his full retirement age. If he has a 401(k) or 403(b), he can withdraw his money with no penalty starting at age 59 ½.

Semi-Retirement

I’m the director of a literacy organization in Minneapolis. I’ve worked really hard to get to this point in my career, and I love what I do. That said, I can see myself shifting to a part-time schedule at some point so I would have more time with my spouse, kids and (hopefully) grandkids. I could also be open to a new job in a new field because I like new challenges at work. How do I plan for a retirement where I continue to work, but have more time for my family?

Sarah, 43

For some, an ideal retirement actually includes working. Semi-retirement is one way to enjoy the benefits of retirement without completely giving up your work life. By working part-time in retirement, you can continue to boost your income, keep your skillset sharp and meet new people. That said, there are a number of key implications for semi-retirees’ taxes, benefits and career trajectories.

Sarah’s first steps toward semi-retirement

1. Check employer’s policies on part-time work and benefits. Depending on how much Sarah works in a calendar year, she could still be eligible for her employer’s insurance and retirement benefits.
2. Consider an “encore” career in a new field. Sarah is open to a new job and a new challenge, so a professional “second act” might be a good path. She could consider becoming a consultant in her current field or retrain to get a job in a new field. Local organizations or community colleges sometimes have specific programs for people hoping to launch a second career.
3. Consider a side hustle. At some point, perhaps Sarah would be interested in moving on from her current job and trying something new – say, a part-time gig at the bike shop she loves or starting a small business. It could be a fulfilling next chapter in her personal and work life.
4. Keep an eye on tax brackets. Sarah could wind up in a higher bracket when her paycheck and any retirement distributions are combined. To avoid this issue, she could adjust her retirement withdrawals or work schedule to reduce the number of hours she works.

Non-Retirement

I’m an advertising executive at a mid-size agency in Austin. I’ve been in the design industry for my entire career. I’m about a decade away from retirement age, but I already know traditional retirement isn’t for me. I want to continue working as long as I can – not only because I love what I do, but I also happen to live in one of the fastest-growing cities in the U.S. and have bills to match. Do I need to plan for retirement if I don’t see it in the cards for me?

Jack, 55

Jack’s first steps toward non-retirement

1. Continue saving for retirement. Even if Jack has no intention of leaving the workforce, he should continue saving in case the unexpected becomes reality. No one schedules a family emergency, health issue or layoff, and any of these can prompt an unplanned exit from the workforce.
2. Make a plan for retirement distributions and other benefits. Jack should determine if he wants to take retirement distributions while he’s still working. He should also consider when to take Social Security. If Jack can wait until his full retirement age, the “earnings test” no longer applies and his income will not reduce the amount of his benefit.
3. Look after your physical and mental well-being. Good health is invaluable, especially later in life – and taking care of yourself is the first line of defense against skyrocketing healthcare costs.

Retirement isn’t one size fits all, so it’s important to create a plan that fits your vision for this phase of your life. A Baird Financial Advisor can help you create a plan to help you pursue the retirement you see for yourself.

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