| 30 September 2009
I have noticed more articles recently where financial advisors give the opinion that the only way for some people to retire after a market like we have seen is to take on more risk (i.e. go even heavier into the stock market). I think this advice is too simplistic because there are many more options to consider before taking on more risk in a portfolio. Markets rise and markets fall so it is wiser to establish a portfolio that can withstand that. There have always been multiple options that aid in a comfortable retirement. This new economy has brought back old retirement options.
One option to remember is postponing social security benefits. Postponing benefits allows for higher success rates in the retirement projections I have looked at. I would define success as not running out of money later in life. By delaying social security from 62 to 65/66, benefits will increase slightly over 20% (approximately five to six percent per year). For every year after that through age 70, benefits increase by approximately 8% per year. Remember, future increases for inflation are based on your initial benefit amount; the compounding effect of delaying benefits makes a large difference as people enter their 80's. Think of social security as being a large pool of bonds that acts like a buffer for the portfolio while being exposed to less risk than loading up on equities as the pundits suggest.
Another option that many do not think about is part-time work. Over the last 15 years the push has been to retire in your mid-50s and do nothing. I disagree with that simply because most of the successful people I know did not gain traction in life until they hit their 50s. In your 50s you finally have the network of people and the wisdom to succeed in business. Why quit then? Our happiest clients over the past year have been the ones that have realized that part-time work is just another phase of life that can actually make "retirement" more fun than ever. In fact, those that work part-time are often doing it in second careers that they always wanted to try.
A third option for those that are still working is to make the conscious decision to save more for retirement, sometimes meaning that they will have to say no to their children. I have always maintained that nobody should short-change their retirement due to their children's education or lifestyle. You cannot borrow for retirement but children can borrow to go to college. This is not a pleasant answer because it makes people feel like they did not do enough for their kids. Yet generations past never promised their children a free education and those children ended up contributing a lot to society through hard work. In the end, most people understand that you value what you work for so let children work at their education and you work at saving or even paying off your house before you retire.
It is hard to see the silver lining sometimes but I believe there are plenty of opportunities right now for people that want to retire. Lifestyles will be different because of our economy, but that does not mean that retirement cannot be fulfilling. It simply means you need to know the options and agree that it might be different than what you dreamed, but it can still be fun.