Having a plan for pretirement is comforting and exciting but it can also feel constraining. Our Vanguard Personal Advisor Services plan is adaptable but it can also feel like driving on a freeway to reach an appointment in another city with someone important who is expecting you: Will traffic slow me down? Do I have enough gas? Will I take the wrong exit and get lost?
I find that using retirement calculators, though handy, is similarly stressful. Each one seems to be different and none are able to incorporate all of the many variables in a person or family’s life. It’s not possible. Retirement calculators and professional financial plans have their place in the toolkit but should be kept in perspective. The biggest tool we have is the flexibility to adapt.
What is different about your life from ten years ago, major changes that you didn’t expect to happen? Are you living in a new city? Did you have more kids or no kids unexpectedly? Are you divorced? Married to someone you didn’t know ten years ago? Managing an illness you didn’t expect? In a new career? Back in graduate school? The point is, life is not fully predictable, which makes financial plans and retirement calculators of limited utility.
One adapts to change. “Embracing Change” is one of those workplace cliches but it is a mandatory mind and skill set. I’ve known people who hunker down and ignore change as a coping strategy but they often end up worse off. Rather than hunkering down and ignoring change, it is usually more successful to keep one’s antennae in the air, making small adjustments as change is warranted rather than waiting to be forced to make really big changes that have been ignored.
Happily, as in any other sector of life, we can anticipate and embrace change by adapting our pretirement plans. Those documents and calculators can give the impression that we only have a binary choice: Work until we don’t have to work at all anymore or quit sooner and watch all the money run out. The problem is plans and calculators cannot encompass the nearly infinite variety of options a person has across the next 30-plus years of pretirement and retirement in a changing world.
After years of reading enjoyable financial blogs and books, listening to podcasts and playing with partially-helpful calculators, I’ve mentally broken through to viewing pretirement as an adventure, not a calculation. Adaptation is its key rather than a huge portfolio. I am no longer as concerned about running out of money as I was when I started this journey of self-education and preparation. Rather than the simplistic and limiting “Will I run out of money?” output, the question has evolved for me to “What levers can I pull and when that will give me the income I need to foster maximum self-determination and happiness in my life?”
Levers To Pull in Pretirement
What are some of the tools at our disposal to ensure that we don’t just sit in our chairs until suddenly, in total surprise, the portfolio fails and all the money runs out? Here is a very partial list:
- Part-time work of some kind, either self-employed or working enjoyably for someone else, or maybe both at the same time.
- Run our house as a vacation rental.
- Rent out our house long-term and live somewhere else. That would be a break-even proposition right now, given our mortgage, so there’s little value in doing it. Someday, the economics might make more sense.
- Downsize our house. Lots of people live in smaller and less-expensive condos and apartments than the house we live in. This 103 year-old house has two sets of stairs and a big yard that we might tire of working on someday. If we sell and downsize, buying or renting a less-expensive place to maintain, clean and operate, several points are added to the confidence level.
- Refinance the house. This doesn’t make sense now but we might like to leverage our equity in the future. I don’t love the idea of reverse mortgages but it’s another viable way for older people to finance retirement.
- Sell the house and buy a duplex, living in half. Such a move could help neutralize one’s mortgage.
- Co-housing is a mostly-European concept but is also practiced in America. It’s a way to share expenses and create a community of human relationships, both of which are important for a comfortable and happy life. I plan to explore this topic more in future posts, just because it sounds interesting.
- Move to the country or a smaller town. We find lots of ways to spend money enjoying our city. If we had to, we could move to a cheaper area. Lots of people do, which changes their economic picture.
- Move to a different country. We have friends who live much of the year in Latin America and I had an uncle who hit hard times and moved to Costa Rica, where he could afford to get on with his life. There are lots of expats living adventurous lives in less expensive countries.
- Simply reach age 70 before we take Social Security. Taking Social Security at age 62, as most people do because they choose to or have to, provides a subsistence level benefit. Waiting until 70 allows the payment to increase by 8% for each year one holds off. This additional 8 years of compounding makes waiting until 70 a whole other proposition and can allow an above-average income in retirement all by itself. For someone who has not saved, simply figuring out ways to literally buy time until age 70 could be the way to go for their retirement.
- Buy adequate insurance. We have lots of it: car insurance, home insurance, long term care insurance, term life insurance, liability insurance, even smart phone insurance. Nothing can solve all financial problems and protect us from losing all of our assets in any eventuality but we can dramatically reduce the odds of and damage from such an event.
- Avoid debt. Eliminating all debt beyond a low interest mortgage in pretirement gives a person flexibility to pull many other levers elsewhere.
- Allow for financial upsides. So much of financial planning is anticipating and managing risks that are downsides. What if good stuff happens, too? The financial markets might perform better than expected. None of the experts ever predicted the creation of Facebook, Amazon, Apple, Netflix or Google or, for that matter, any other company in the S&P 500. Other transformational companies will surely appear. Also, is your city growing? If so, your house might go way up in value. You might get an inheritance you didn’t expect. Who knows? I once worked with a woman who kept some stock in a small company she helped found decades before. One day, she announced her retirement, completely unplanned, because her former partners had sold the business for big bucks. We wanted to throw her a retirement party but she said, “Thanks but nah, I’m good. Bye-bye.” The point is, optimism is no more expensive than pessimism.
What are some of your own levers?
Literally no one is going to sit in their chair in pretirement, look at their financial plan and say to themselves, “This says I will run completely out of money in five years. Gee, I guess I’m doomed to having the lights go off.” No, you’ll get up out of your chair when you start to feel concerned and will pull some of your levers to adapt.
The inevitable changes in life and our adaptations to them imply adventure to me. I see my inventory of levers as forms of power to manage my life. I also like the thought of employing them to benefit our own lives a lot more than the usual American work-full-time-until-you-can’t model that serves many others’ economic interests. I figure, perhaps the best thing I can do for others whom I love is to first try to be happy and engaged with maximizing my own one life.