I am still in the trough of life. Though I would call myself privileged, it’s still a race against time, balancing work, kids, and a home, not mention the desire to be more informed. But, having seen what the typical retired life looks like in ones 70s, I was inspired to post about an alternative I’ve been considering for a while. Working less, but for a longer period of time.
There’s a very formulaic vibe to the standard retirement community life. Eat, read news, clean up, head to the gym or community center, eat lunch, hit the pool, shower, eat dinner, take a walk and chat with neighbors. Rinse, repeat. Granted if one travels a lot, volunteers, and/or has hobbies, such as music, gardening, or a attending events, that can provide a variety. But for the most part, retiring at 65 with an end to the work routine and income seems a bit monotonous to me.
I work full-time, as does my husband, and I suspect dropping to four days a week (80%) would just end up meaning the same work for less money. But I have wondered for a while what it’d be like to work less, or save less for retirement, to enjoy the present more. If I can stomach working until 75 instead of 65, one option is to work less and/or save less for retirement, but for a longer period of time. This would allow one to spend more money in the present, to buy back one’s time and enable more travel and hobbies. Some examples of how I’d spend more month are: babysitters, meals out with friends, date nights, travel, and hobby classes (is it a cliché to take a pottery class at 44?).
Example: Retire at 65 Years Old
While the starting amount isn’t my exact retirement account balance, it’s within range. My annual 401K contributions plus employer contributions, averaged monthly, were about $2.800 until recently. Given a raise and the higher 401K investment cap of $21,500, I’m closer to $3,100 now. For this exercise, I used $2,800 a month since it’s a solid historical number.
I got a late start and changed careers a few times, and at present, am 44 years old. Much of our household income goes to childcare and our mortgage. I used this example to show an estimated balance at age 65, assuming a more conservative 7% rate of return.
Note that $3.2M at age 65 is not in current dollars or purchasing power. Using a 3% inflation rate with the Forbes Inflation Calculator, one can see a retirement portfolio of $3.2M 21 years from now has the same purchasing power of $1.7M in the present. The FIRE movement usually that an easy way to determine your FIRE number or retirement savings goal is to multiply your estimated annual budget times 25. So let’s say from my income alone [excluding my husband’s income] I need $80,000 gross annually to live comfortably, then I’d need $80,000 times 25 = $2 million. That implies I’d fall short here because the present value of $3.2M is $1.7M. Instead the $1.7M would provide $68,000 annually using the 25X rule.
An alternative is I work 10 years longer, until I’m 75, but not necessarily full-time in the final 10-15 years because in this scenario, I save 50% as much each month, or $1,400 instead of $2,800. Anyone who has mentioned the power of compounded interest will say that youth have the benefit of time — the younger you are, the less you must contribute because there are more years for your portfolio to grow.
This section option — to retire at 75 instead of 65, and investment 50% for the next 31 years, means one retires with sufficient funds. That’s because $2M in current funds is equivalent to $4.9M in 31 years. This works by the rule of 25. But, there are problems with each scenario and if you count yourself lucky enough to be a higher earner, than you know as a w2 employee there are few ways to reduce your Adjusted Gross Income (AGI) i.e. the amount of income you are taxed on. When you can max out your retirement accounts — especially if you are not eligible for a Roth IRA (backdoor is an option) — then you benefit from pre-tax retirement contributions, whether you opt for all pre-tax or a mix or deferred and Roth 401Ks.
If you choose to stop maxing out your retirement to take home more pay for things like childcare or travel, then you will end up paying more in taxes. But it’s all about personal interests. Life is not static and these don’t have to be long-term solutions.
Right now, I’m in the final year of pre-school for my twins. Now that we have been paying twin childcare for four years and we are lucky enough to have a comfortable life and we can afford to cover our bills, I’m not planning to cut my retirement contributions. But, running this exercise does reduce the pressure I had put on myself to invest and save the majority of our savings when we move to public school kindergarten.
Though I know elementary school comes with after school care, classes, sports, and other expenses, plus summer camp fees, we’ll still significantly reduce our monthly burn rate. Another factor that helped was men my husband and I discussed how we’d fund college for the twins. I had assumed we’d aim to cover their full tuition, room and board, but he did not. So we do what we can, and we’ll increase our 529 contributions once Kindergarten starts, but we won’t put the pressure on ourselves to fund 100% for both kids.
Marriage with kids is hard. We shouldn’t continue to perpetuate the idea that the American Dream is a one-size-fits-all formula whereby we all get educated, get office jobs, marry, have kids and buy a home. Then a lawn chair for soccer practice. Many young millennials are daring to dream beyond that, and to question if they want to get married, want to have kids, see the benefit in buying versus renting — and I admire their strength for challenging the status quo.
That said, I love where I live. I’m blessed to have a flexible, well-paying job, and healthy kids. But marriage is hard, and it gets even harder with financial burdens and kids to keep alive. I’m grateful I was able to live alone in New York City and play and was then later able to meet my husband and become a mom. The main point here is to question your choices based on the life you want, not the life you think you should have. Stop and sit in silence, alone, and think about what your dreams are, what you hope to experience and accomplish. It’s not always sexy, but it doesn’t have to be. It just has to work for you.