An Easier Way to Fund Your Retirement

I think we all know that retirement will require a ton of savings for each of us. But just how much? This piece from Yahoo starts by giving us an estimate of what we'll need to have saved to provide for our retirement lifestyles:

Doing the math revealed that if you retired today at age 65 you would need total savings of just over $200,000 to have enough money to support yourself for five years. But you'd need nearly $1 million for the money to last 25 years. Even adjusted for inflation, that's a far larger nest egg than your grandparents needed.

But the piece offers another alternative, an "easier" way to retire. Their idea is a mix of work and play. Save enough now to allow you to downsize in your later years, pursue a new career you've always wanted to try, and enjoy extended time off. Here's a comparison between the "old" way of retiring and the new, easier way:

According to a Merrill Lynch study, if you're a typical 50-year old (household income of $62,500 and savings of just under $60,000) you'd need to start today and save 20% of your income every year to retire comfortably at 62. If you wanted to retire at 58, you'd need an impossible savings rate of more than 100%!

Now look at how the financial requirements change when you introduce a blend of work and leisure. If you're a typical 58-year old and plan to leave your primary career at 64 and work part-time until 75, you'd need to save as little as 6%; and if you wished to work full-time until 78, you'd hardly need to save at all.

Here's how the easier way to retirement works:

1. Downsize or Downshift Your Career. (instead of not working at all)

2. Let Your Savings Keep Growing.

3. Stop Working for Good. (when you're in your 70s)

I'm thinking this is the formula that I'll use -- not because I'll need the money, but because I want to keep active (for my mental and physical health) as well as pursue some things I've "always wanted to do." Besides, by then I may have acquired some wisdom that some organization can use. ;-)

Comments

[Mike]

I know one thing - I am glad to start saving for retirement early! I like the idea of saving enough now, so that you can downsize your career into something less time-consuming, and something that you really love to do. I can imagine my "post-retirement" job may be on the golf course...Great post.

[Michael]

I expect to have a post-retirement career as well, but I was hoping to spend most of it at non-profit organizations for no pay. Fortunately, I'm only 28 and already have the habits & savings in place that should allow retirement in my mid-50's, even if my inflation-adjusted annual expenditures double between now and then. The only thing I'm really worried about being able to afford is health care. One more thing to motivate me to get out of bed and get my 5 mile run in every morning now!

[Matt Laswell]

I agree with the previous two commenters. The thing I get from the Money article is the importance of starting early. 50 years old with savings of about $60K? That's a big hole to dig out of. I was surprised that retirement at 62 was even possible given that starting point.

What's unfortunate is that that scenario is pretty typical for many in the baby boom generation.

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MattLaswell