The New Rules of Retirement Series
Retirement is changing, whether you like it or not… whether you are prepared for it or not. Let’s lay down the new rules of retirement and how to follow them, bend them and break them for your needs.
This is the introduction article to our New Series: The New Rules of Retirement. The Next Article in the Series is Jobs For Retired People.
You have the freedom to define the word “retirement” to best suit you and your needs. Retirement might have been cut and dry for the previous generations, but it is all over the board for those pondering it now.
We all know the old playbook – put in your time at a company – retire after 40 years – receive your pension and social security. This playbook was scrapped for many in the baby boomer generation on. Events beyond our control may have set us back or have caught us off guard.
Depending on if this happens to you later in life or earlier in life, there are still ways to enjoy a “retirement.” Moreover, some might find the new ways of providing for retirement even more fulfilling than the old ways.
A Case Study in The New Rules of Retirement: The “Average American”
Let’s say that you are the “Average American” who is of retirement age. (We are talking – the most average of average.) You decide to retire at 66, the current full age of retirement. Right now, the average Social Security check for the Average American is $1,461 a month.
In addition to Social Security, the “Average American” will have about $172,000 in retirement savings at age 66. This is based on a (median estimate instead of average).
Then, let’s assume you made about $60,000 a year in your last years, and you are about to retire today. You estimate that you will need about 70% of that amount to live in retirement. So, you need $42,000 a year, or $3,500 a month to fund your modest American retirement. (This is all in current dollars, not future money for this example.)
To be reasonably safe, we will assume you will live to about 90 years old and your savings will stay in the stock market with a 5% rate of return in conservative investments.
Just How Screwed/Set are You – The “Average American”?
If you live to 90, for this case study, the math says you will need about $470,000 in savings to compliment your social security (in today’s dollars). However, you only have $172,000. In this scenario (living off of $42,000 a year) you are short $298,000.
You will have $2,205 a month to spend instead of $3,500
= a deficit of $1,295 a month.
This adds up to living off of $26,460 (including social security) instead of $42,000.
On top of this, we have not even taken into account taxes! Depending on how much you withdraw each year, and where you have your money stashed (401k? Roth?), you may need to pay taxes on your retirement income. Austin, at The Logic of Money, does a good job on quickly breaking down retirement taxes in this article here.
So, What Do You Do?
Many Americans will accept their fate and live on their fixed income, or they may decide to stay in their full-time job longer. However, that does not need to be you! Being retired does not need to be a do nothing sentence.
In Comes the New Rules of Retirement
The New Rules say you can make up the difference by making passive income and participating in side jobs. (This is what the kids call side hustling!) Moreover, you can still maintain your retired status find ways to do things you love (or hopefully come to love).
With your side job, you can showcase your skills/expertise or learn a new skill. You only need to make about $1,300 a month, so there the pressure is revealed to find something that just “pays the bills.” Retirement is a time to spend time doing things you enjoy with people you enjoy. You can tailor your experience to meet your needs with a little bit of planning and initiation.
The new rules of retirement say you have the freedom to define the word “retirement.” You can still be retired and bring in extra income in our new economy.
Passive Income and Side Jobs for Retirement
Our next articles in our New Rules of Retirement series will help you explore all the avenues of making extra money. We will explore traditional jobs as well as new jobs available to retirees who need a little extra income.