Retirement is not always permanent. Lack of enough money is one reason retirees go back to work. But other people struggle to find fulfillment in retirement and choose to take on a new job. More than half of retirees age 50 and older say they would return to the workforce for a compelling opportunity, according to a recent survey by RAND Corporation. This suggests that retirement is becoming a process, rather than a final destination. Here are eight tips to help you retire and stay retired.
Retire to something. As you plan for your retirement, make sure you are retiring to something and not retiring to escape your career. A common reason retirees return to the workforce is boredom. Some people focus solely on achieving their financial retirement goals, but neglect to think enough about what they will actually do in retirement. When they get to retirement, they find themselves without a purpose.
A retirement savings plan is half of the blueprint. Designing how you'll live a purposeful retirement is important too. Visualize your days without work and think about how you will live your life each day. Take a pre-retirement vacation and practice how you'll live. What activities excite you most about retiring? Where will you go and who will you interact with? If you struggle to see yourself as retired, you might not enjoy the lifestyle.
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Delay your retirement date. Delaying retirement is the most practical way to avoid having to return to the workforce. As you continue working, focus on putting more of your income into savings and watch your existing investments compound with time. This strategy will strengthen your nest egg and help prepare you for your eventual last day. Every day you work decreases the number of days you'll need to fund in retirement.
Relocate or downsize. Seniors flock to Florida for more than the weather. Florida has no state income tax. That means you can avoid state taxes on retirement income by moving there or to one of the six other states that have the same taxation policy. If you prefer to stay in your current state, downsizing your home has the dual benefit of lower maintenance and utility costs and lowering your property taxes.
Decrease investment risk. Retirement savers should gradually reduce investment portfolio risk as age increases. That means your ratio of stocks to bonds should decrease with age. Adjusting your portfolio to be more conservative reduces the chance that a severe market decline will put your retirement at risk and require you to get a job. A good rule of thumb is to subtract your age from 110. The result should be the approximate percentage of stocks in your portfolio. For example, if you're 60 years old, your investment portfolio should be about 50 percent stocks and 50 percent bonds. Investment alternatives such as real estate and commodities can be added to further diversify and protect asset values.
Invest for income. In the wealth accumulation phase of life, most savers focus their investment objectives on getting the best possible return. Upon retirement, your needs shift to generating income, capital preservation and systematically withdrawing funds from your nest egg. A parallel approach that can help keep your retirement assets sustainable for longer is to invest to build income streams. By having safe and reliable income streams in your retirement portfolio, you can live off the proceeds of the investments instead of relying entirely on a draw down strategy.
When evaluating retirement income investments, the focus is less on the potential appreciation of an asset, and more on the safety of the income it provides. For example, when purchasing a stock, look for companies in stable industries that have a reliable and sustainable dividend instead of strong growth prospects. Highly rated bonds and real estate properties with safe cash flows are other options for creating reliable income streams. Building sustainable income streams leaves you less susceptible to market fluctuations and decreases the chances of running out of money.
Put cash to work. Many retirees take comfort in having a sizable amount of cash that is easily accessible from their local bank. However, most banks pay very little interest on cash savings these days. Idle cash in a checking or low interest savings account will almost always lose value to inflation.
To combat inflation and keep your cash liquid, shop around for a bank that pays a higher interest rate on cash deposits. Plenty of reputable banks offer savings and money market accounts with rates near the rate of inflation, but those banks may not have a local branch near you. Some are online-only, but they function much the same as any other bank. They are still FDIC-insured, and you can access your cash from ATMs or transfers to and from your checking account. Since online banks don't have the costs of operating a physical branch location, they can afford to pay more interest back to their customers. The higher interest you receive counters inflation and increases your monthly income.
Cut living expenses. Time flexibility in retirement can open opportunities to lower living expenses through better money management, frugal living and a less wasteful lifestyle. Pay close attention to your bank and credit card accounts for recurring costs that can be eliminated. Before each new purchase of a household item, ask yourself if it is truly needed or a nice-to-have item. Find creative uses for things you already own. Consuming less is better for both your pocketbook and footprint on the earth. Removing frivolous and unnecessary spending each month leaves more money to spend on experiences and helps to secure your retirement.
Discover meaningful work. Many retirees are happy to leave a career, but sometimes miss the intellectual engagement that comes from earning a living. Even small amounts of supplemental income can go a long way in extending the longevity of your nest egg. For those who enjoy the pursuit of financial gain, retirement is an excellent opportunity to begin a second career which combines personal passion and entrepreneurship. If your business idea is something you are passionate about and financial gain is not a primary motivator, the pursuit may not feel like work at all. Discovering a second career or starting a business in retirement based on something you enjoy is a surefire way to avoid returning to your pre-retirement occupation.
Craig Stephens is a blogger at Retire Before Dad.
Craig Stephens is a blogger at Retire Before Dad where he writes about investing, personal finance and travel. He aims to retire at age 55, one year earlier than his Dad did. You can follow him on Twitter @RetireBeforeDad.