It’s been over 4 years since I started to immerse myself in the pursuit of retirement by blogging at Retire By 40. I sense there is a growing fear of retirement among the middle class which is somewhat puzzling to me. Retirement used to be something everyone looked forward to. It’s the time to put your feet up and relax after a long stressful career. These days, it seems retirement is something many of us are forced into. If you’re not ready, then retirement could be devastating to your way of life.
Poverty in old age
Baby boomers are retiring in droves, but many of them aren’t quite ready for retirement. They have a long retirement ahead of them, though. The life expectancy in the USA rose to a record high 78.8 for babies born in 2012. For us older sets, a man can look forward to 18 years of retirement if he calls it quits at 65. A women has an extra 2 and a half years on average. That’s a long time in retirement and many retirees are not financially ready for it.
Recently, Fidelity reported that the average retirement fund balance of participants age 55+ are about $250,000. This might seems like a large amount, but can it really last 18+ years?
For simplicity, we’ll use the 4% safe withdrawal rule and take 4% from $250,000 every year. That’s just $10,000 per year! Hopefully, the average retiree will have access to Social Security. Okay, I looked it up and the average payout for retired workers in 2014 was about $1,300 per month. It seems the average retiree is in trouble if she doesn’t have a pension (which is getting rarer than a dodo). Her budget will be just $2,133 per month from Social Security and personal saving. That’s not much at all in Portland, but it might work in more affordable parts of the country. Still, I imagine many retirees will have to downgrade their lifestyle significantly to make ends meet.
The worrying thing about these numbers is that many retirees will probably withdraw too much at the beginning of their retirement. They are still healthy enough to go on various adventures which aren’t cheap. If they run down their personal saving, then they’d have to live solely on Social Security benefit. It’s not fun to be poor at any age, but it’d be especially tough when you’re 75.
Lack of purpose
Money isn’t the only reason why people are afraid of retirement. Even if they’ve saved diligently and amassed a comfortable nest egg, some people think their retirement years will be boring without the mental stimulation of work. I’ve heard many stories of depressed retirees and that’s not something to look forward to.
We all live ridiculously busy lives these days, but it will be tough to be backfill the 40-60 hours per week we spend working and commuting. Work takes up such a large part of our lives and it will leave an empty gap to fill when we retire. Your social circle will shrink because your former coworkers will be too busy with their own lives. Sure, it will be nice to relax for a while, but don’t let relaxation turn into boredom.
The real problem in retirement is the lack of purpose. When you’re working, you’re moving toward some goals every day. For many retirees, that’s no longer the case. You have to set your own goals when you’re retired and that’s tough for employees who have had a structured working life for 40 years.
Are you afraid of retirement?
Am I afraid of retirement? Not really. I’m very lucky to be able to leave my career when I was 38 and to become a stay at home dad/blogger. I’ll have 20 years to ease into full retirement. We should be fine financially because we live within our means and we saved diligently since we started working. Right now, I’m not bored at all because I have 3 year old kid to help make life interesting. I’m sure I’d find something fun to do on my own when he’s grown up. I’m embracing early retirement and it’s fantastic.
Retirement can be a difficult transition, but everyone has to retire at some point. It’s better to be prepared and walk out with your head high rather than be forced out the door, right?
Are you afraid of retirement?
Passive income is the key to early retirement. This year, Joe is increasing his investment in real estate with CrowdStreet. He can invest in projects across the U.S. and diversify his real estate portfolio. There are many interesting projects available so sign up and check them out.
Joe also highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help DIY investors analyze their portfolio and plan for retirement.