Retirement Planning Begins With Your First Job and Ends When You Die

The third and final phase of your career in the worldwide workplace is retirement. For most workers this is a happy and productive time to pursue long-delayed ambitions be it alone, with a spouse or partner, with friends, or family members. If today’s retiree planned accordingly this will be the ultimate good time because there is so much to do, so many places to explore, and so many opportunities to give back to the community after rendering fifty or more years of service to any number of employers. Now you can do whatever it is you want but on your terms. No more reporting to a boss. No more signing in. No more pipeline reports. No more weekly and monthly productivity reports. No more sales quotas. No more annual productivity meetings with the Human Resources Manager. Freedom at last!

However, before we become too giddy about retirement, we must understand that the concept and practice of retirement is changing in the worldwide workplace. The traditional meaning of retirement was ceasing active work altogether and paying living expenses from Social Security funds and/or employer pension plans. Now it is something different factoring in age, employer and government benefits, pensions, encore careers, Social Security benefits, IRAs for workers in the U.S., and annuities. It is no longer one size fits all. For example, in the UK retirement age for collecting government benefits is 65 and will increase to 67 in 2028, and to 68 in 2037. Contrast that with the U.S. where workers can begin collecting Social Security benefits at age 62 but with a 25% discount. To collect full benefits in the U.S. workers must stay employed until age 70.

The Numbers Tell the Tale

Today, this thing called retirement is an ever-changing concept and demands changes in attitude and behavior. Numbers from the U.S. Census Bureau, the Pew Research Center and the U.S. Department of Labor Statistics are enlightening. They send a clear message to the worldwide workplace generally, and the America workplace in particular: retirement is an ever changing dynamic. Workers must constantly review the data and respond accordingly.

Who’s Retiring?

There are approximately 48 million retirees in America receiving Social Security benefits. Each day in America 10,000 workers retire from their jobs at an average age of 65 years. That’s 70,000 per week, 280,000 per month, 3,360,000 per year. The average life span for America workers is 79 years and rising. (However, it is much lower than the 85 years for the world leader, Hong Kong.) The average amount American workers have saved for retirement in general savings accounts or Individual Retirement Accounts is $155,000, a pittance considering the money one needs to survive until death at age 79, which is 15 years after retirement at age 65. In January 2021 retired American workers averaged $1,543/month or $18,516/year in Social Security benefits which are subject to Federal government tax. After subtracting tax, Social Security benefits stand at about $17,500/year, a pittance.

According to the Transamerica Center for Retirement Studies, the average retiree has about $32,000 after-tax income per year telling us that in addition to SS benefits you will need to find an additional $14,500 annually to meet this minimum standard.

To determine how much you will need to retire without financial stress create a simple accounting spreadsheet with a handwritten list of your expenses or use an Excel spreadsheet. Include what you will need for the big three, food/shelter/clothing. Add to that the cost of insurance premiums, property taxes, rent, mortgage payments, utilities, medical needs like prescriptions and doctor visits, transportation costs, and gifts for family and friends. Toss in a limited amount for recreation like playing pickleball, golf or tennis, and eating out. Total all of your expenses per month and per year. In another column total all of your income and see if it is adequate to cover your expenses. But there is more to this equation.

The annual amount of money the average American retired worker needs to live a middle-class life varies greatly with location. A couple living in rural Montana can get by on $32,000 per year, but the couple living in or near New York City will need double that amount, $64,000. So, where do you find another $32,000/year to meet your expenses in New York City? It has to come from your IRA, a company or government pension plan, an annuity, dividends from an investment portfolio, an encore career or from accumulated cash.

Those who have reached retirement should use this data to chart a meaningful course of action for their final years in the work cycle, those years inappropriately named “retirement.” This is the most misunderstood phase of the work cycle and preparation for it should begin on the first day you begin work in the first phase of the cycle, being employed.

The Two Big Challenges for Every Retiree

So how does the newbie retiree handle these two challenges for the next 14 years of life on Earth? Everyone needs a sense of identity but how does one make that happen without a job title and company affiliation? And, how does one budget Social Security income plus a possible retirement payment (very rare now) against daily expenses like the basic three, food/clothing/ shelter, plus insurance premiums, costs for transportation, recreation and other unforeseen expenses like replacing the heating furnace that breaks during the coldest months of the year or replacing the AC unit when the temp in Chicago is 98 in the shade with relative humidity at 90 percent.

1. The Loss of Income Challenge

The finance challenge is relatively easy to handle because it involves tangible items that intelligent human beings can manage with a little planning. You can make progress solving this challenge using the simple accounting exercise below. If your expenses exceed your retirement income, you will need to find another job. Many workers have done just that in order to remain self-sufficient during retirement. In fact, a large percentage of retirees continue working in another job after “retiring.”

After the retirement party, the traditional slap on the back for service well-rendered plus the award of a trophy or an iWatch or the latest technology gadget, two serious challenges face the new retiree, loss of income and loss of identity. Let’s cite examples using our fictitious retiree, Judy from Chicago, who was Marketing Director for a chain of upscale retail stores on Michigan Avenue. When Judy retired at 65 her monthly paycheck of $6,000 per month, $72,000 per year, ceased. Chicago annual living expenses for retirees is approximately $50,000. To meet that number, Judy collects Social Security payments of $2,500/month, $30,000 per year. In addition, she can take $15,000 from her IRA giving her an additional $1,2500 per month. (The total amount in her IRA is $155,000, the average amount for all U.S. workers, according to the Bureau of Labor Statics.) Now Judy has pre-taxed annual income of $45,000. Subtract Federal and State taxes of $9,000 (20%) and Judy has only $36,000. This will not cover her living expenses during retirement, which for the average American worker in Chicago is $50,000 per year. Where is she going to find another $14,000 to meet annual expenses? But that’s not all for Judy. Let’s take this to another step.

Judy is 65 and has about 14 more years to live. Multiply her annual living expenses, $50,000, times her remaining 14 years on Earth and you get $700,000, the amount of money Judy will need to avoid going on welfare or moving in with relatives, neither a pleasant option. To stay even, Judy will need to find an encore career, not a pro bono “community outreach” venture, but one that will pay her for services rendered. Good luck, Judy. Too bad you did not save for retirement when you began your first job.

2. The Loss of Identity Challenge

The second challenge, loss of identity, is the one causing the most angst and sometimes serious psychological problems for retirees. Now that Judy has lost her identity, which was based on her job title and company affiliation, how does she rebuild this most important part of herself? Who is the new Judy?

This new kid on the retirement block is no longer, “Judy Jones, Marketing Director for Big Retailer Inc.” Now she is just plain “Judy.” How does she find a new identity, something to replace that fancy title with Big Retailer Inc? This is a very serious challenge and the search for answers is a serious and necessary undertaking.

Moving Forward

We’re not going to let you sit and wonder how you can solve retirement challenges and dilemmas. We’ll not leave you crying about regrets of the past, and fear the future. And, we’ll help you win three games retirees play constantly. They are “shoulda”, “woulda”, “coulda.” In succeeding chapters of JUGGERNAUT we’ll help you find the promised land where you will be happy until the day you die.

Tips and Takeaways

Money can be the cause of grief or retirement heaven.

If you can’t retire with enough income to cover expenses, keep working.

The cost of living is much lower in rural areas of the world. Consider relocating.

You are not going to live forever. If you are still alive at 84, be happy.

Your retired identity independent of a job title is key to retirement happiness.

Put aside regrets of the past and fear of the future.

c2021 John Henry Weiss