I don't know about you, but I don't see myself sitting in a rocking chair and reading the newspaper in retirement, and I really like what I do for a living. I'm not in a rush to stop working, but the idea of getting to a point where I've saved enough that work is optional and not mandatory, or I could choose to make less and still be in a good financial position is really appealing. The reality is that in the US, according to a 2018 study by ProPublica and the Urban Institute, nearly half of workers are forced into retirement before they plan to retire, either due to health issues or layoffs. The idea of having enough money saved so that work is optional is all the more appealing. As for getting Social Security in retirement, Social Security is designed to replace about 40 percent of your income. For high income earners that number is more like 25 percent, and for low income earners that's more like 55 percent. That means saving and investing for retirement is a critical component to being able to retire someday. The earlier that you start investing for retirement, the longer your money has to grow. In fact, waiting just 10 years to start saving could mean having half as much at retirement. Starting early means more of your retirement portfolio can come from investment gains, and less has to come from your own pocket. Instead of thinking about retirement, think about financial independence, which is the [inaudible]. When I asked clients when they'd like to retire, they often tell me they want to plan for whatever is typical. What's typical? Most Americans plan to retire in their mid to late 60s. You work until 67 or so and then never work again. That's a traditional retirement scenario. This generally coincides with Social Security benefits kicking in as well. Social Security benefits are available as early as age 62, but you'll get quite a bit more if you wait until age 66 or 67 to start collecting. After doing retirement calculations for hundreds of clients over the years, aiming to retire in your mid to late 60s is often the most reasonable option to plan for as well. Retiring earlier requires quite a bit more savings, which is unrealistic for a lot of people, and aiming to retire later is risky because there's a good chance of job loss, health or family circumstances or other aspects will impact their ability to retire later than age 70. Another version of retirement is a phased retirement, which is becoming increasingly popular. The idea here is that you save and invest enough to be able to semi retire earlier, maybe in your 40s or 50s, and then fully retire later, maybe in your 60s. This is a great fit if you want to reduce to part time, maybe move into consulting or make a career change to a less lucrative field in your 40s or 50s, and then fully retire later on. But this generally means saving and investing more, than for a traditional retirement. One more option that I'll share with you, have you heard about the fire movement? Fire stands for Financial Independence Retire Early. It's all about reaching financial independence, retiring as soon as possible, like in your 30s or 40s. If working towards saving, let's say, 15 percent for retirement is daunting, the fire movement is likely not for you. But if the idea of keeping expenses low, paying off your mortgage quickly and saving at least 50 percent of your income so that you can retire in your 30s or early 40s sounds like a fun challenge, you might be into the fire thing. Earlier is better, but when exactly is the best time to start saving for retirement? First, save up a baseline emergency fund, a safety net equal to one month worth of your expenses. Once you have that checked off your list, then you could look to start saving for retirement by contributing enough to get your employer's retirement plan match, if you have one. For most plans in the US, that means saving 3-6 percent of your income into your retirement plan. Spend some time to think about which version of retirement appeals to you, and then also what you're willing to do to get there. Don't be afraid to make it up, it's your life and it's your money.
