Can I Afford to Retire (and when)?

Part 1: What does retirement mean to you?

“When can I afford to retire?” is the question that drives more individuals into the office of a financial planner than any other. The sooner you start asking it, the better.

Too often, the more tangible and immediate concerns of career and family life enable us to put off thinking about retirement, except in the abstract. It seems so far off in the future that it can be difficult to wrap your head around, (that is, until it’s right around the corner!). 

Many financial planners approach the question, “When can I afford to retire?” as an exercise in comparing expected future expenses with expected future income. They’re not wrong, and we’ll get to that in parts two and three, but to answer the titular question in a way that creates the most meaning for you, we need to first consider what you mean by retirement. There’s more than just one path you can take, and the tools of financial projection and contingency analysis are only as useful as the assumptions that you’re making. There are more than just target dates, dollar amounts, and probabilities of success to optimize. To get to a plan that’s meaningful to you, we’ve got to dig below the surface and question the pre-conceptions that we all have about what our retirement will look like.

The Arrival Fallacy

What do you picture when you think about your retirement?

The traditional framing of retirement has been to work hard and save until you're about 65 so that you can enjoy the “good life” once you retire. On the surface, this sounds very familiar, if not desirable. Who doesn’t daydream about the day when you’ll have the time and resources to do more of the things you want to do? But experientially, many retirees discover after they’ve hit their target age or savings number and retired, that they’ve lost something. 

For many people, retirement becomes the epitome of the arrival fallacy: the belief that everything will be put to the right once you attain a certain milestone; come to find out, after arriving at that goal, that it wasn’t what you had envisioned or that the goal posts have shifted. This conventional view of retirement can discount present enjoyment while assuming that leaving the long slog of your career behind will automatically lead to a rewarding and purposeful life. A non-trivial number of retirees go back to work part-time, start a new business, or embark on a passion project, even when they don’t need the money. Which begs the question, why not plan to do those things sooner?

Questioning The Traditional Model: 

As lifespans continue to increase and people are healthier for longer, retiring in your 60s may give you another 30 years or more to plan for. There’s only so much golf, travel, and time with the grandkids that can fill your newly unscheduled weekdays. Don’t get me wrong, I’m looking forward to more of all those things, but the transition can be abrupt and soon leave you feeling a bit rudderless. This phenomenon is especially common among individuals who are highly educated or “knowledge workers” and may have been at the pinnacle of their careers when they retired. They may have been doing their most interesting work yet or were enjoying considerable influence and success that stemmed from their years of experience and relationships. 

Conversations about work and retirement should go deeper than figuring out how much savings you need to have at a given age to maintain your current lifestyle once you flip the switch. There could be a wider range of possibilities available that may increase your enjoyment now and help ease the transition. What if you started that small business sooner? What if you took a pay cut to work part-time for a little longer while traveling more now? What if you decided to teach or work for a non-profit that you’re passionate about in your 50s and 60s? 

Even if you enjoy your work, start by asking yourself questions like: 

• How can I do less of what I don’t like to do at work?

• What are the parts of my job that excite me and give me meaning? How do I do more of those things?

• What kind of work would I do if I were financially independent, and it didn’t matter what my income was?

Trying to define what a meaningful retirement might be for you is the first step to answering the question “When can I afford to retire?” It may be that the traditional model suits you just fine, and we can plan for that. Still, it’s worth exploring some of the “what if” scenarios and keeping in mind that there are other options should you find yourself stuck punching the clock in a job that you hate, just so you can hit some arbitrary age or savings amount. This is where the heart and the value of financial planning are. We’re not just dealing with spreadsheets and some abstract future you, we’re trying to look at where the rubber meets the road, where your finances and your real life intersect. 

The good news is that you don’t need to have a concrete answer to these questions. You may still be attracted to a traditional retirement (and many folks are quite happy with it). But, just knowing there’s more than one path that we can plan for and spending time thinking about what a meaningful retirement is for you gives us a much better shot at creating a good plan, to begin with. It also gives you a more flexible mindset should you decide to go another route later. The sooner you ask yourself these big questions, the more likely you are to find enjoyment and purpose both now and in retirement.

In parts 2 and 3 of this series, we’ll dig into the numbers; first, we’ll consider where the money’s going to come from, and second, we’ll look at what to expect your expenses to look like.