Early retirement was a popular fantasy before the 2008 financial crisis. The yearning still lingers for some of my clients, although most have resolved to wait. I try to encourage clients not to see retirement as an open and shut event but rather as a window that gradually opens. “Retiring along life’s way,” I advise, “can create a smooth passage.” The along the way theme involves a transition period where decisions are made about working hours, income and spending.
First, let’s put the early retirement fantasies to bed. Retiring before age 60 may not be good for you. Several recent studies point to higher mortality risks for those retiring early, after controlling for education, marital status, race and wealth.
A U.S. study (BMJ 2005) found that people who retired at age 55 had almost twice the mortality risk compared to people who retired at age 60 or later. In this research, there were no controls for health. In a Greek study (American Journal of Epidemiology, 2008) which eliminated participants with pre-existing medical conditions, the increased mortality risk was 51%. Taken together, the statistics show that retirement isn’t always a panacea; working a little longer may actually be good for you.
I help clients determine when and how they can retire. From the financial planning perspective, the retirement discussion is all about income and cash flow. But I also devote time to talking about the potential difference between pre-and-post retirement lifestyles – mental, physical and financial. If there is going to be a gap between what you can do now and later, you might not want to rush for the job exit. This means taking control of the transition period.
Certain careers lend themselves to cutting back office hours. Dentistry, higher education, sales and small business ownership come to mind. I work with two dentists – one age 66 and the other age 71. When they were younger, they each lamented about the hectic pace of their full time positions. The older dentist is down to four days a week and actively looking for a partner to transition the business to. If he could get down to two days a week, he claims he could work another ten years.
The younger dentist sold his practice a number of years ago and has already reduced his work load to one and a half days a week under the new owner, filling his free hours with teaching and training at a community college. He will work as a dentist for as long as he has to and wants to. Given the schedule he has created for himself, he is not under pressure financially or emotionally to step aside.
Professors, like dentists, often have options. Several of the local universities are offering severance packages, which include either a very generous one-time payment or the opportunity to work part time with reasonable pay and benefits for a couple of years. Money is less an issue than loss of community and the work experience for many university personnel. Sometimes the transition isn’t about leaving early; it’s about staying too long. Hence, colleges are finding ways to make it easier for faculty and staff to phase out. This is good for both the school and the retiree – cost reduction for the institution and a graceful transition for the retiree.
Sales, small businesses and nursing also present opportunities for adaptable hours. Small business owners sell and then remain for a period of time either to transition clients or help with the rebranding. Sales representatives maintain their current clients, but decline new relationships. Nurses move from salary to hourly and cut back on shifts at their hospitals or clinics. The goal is to create extra income during the first phase of retirement to ensure spending changes are not abrupt or constraining,
But what if you can’t control your schedule and your working hours? Then the “along the way” theme shifts to adjustments in budgets rather than hours. “Start living your retirement lifestyle now,” I suggest to those itching to exit early. While I have few takers of this approach, I do see a lot of serious cash flow analyses emerge from my challenge. As pencils scratch out plans, priorities are set and a realistic look at retirement often emerges.
The transition period to retirement is a flexible time. Along the way, it can be used to maintain ties to a professional community or keep a mentally challenging job. It can mean extra income for special trips, gifts or home renovations that may not be possible later. It can also be a testing period for a future lifestyle before a final decision must be reached. The transition period, if well planned out, can make the entry point into retirement feel less abrupt and more seamless.