Retirement is one of the most important transitions we face in life, and it includes a huge change in our lifestyle. After working for several decades, building a career, and raising a family we will have to meet each day with no schedules and a lot of time on our hands.
But the landscape of retirement is changing. Not everyone wants a traditional retirement. Not everyone wants to work until their mid-60s, then relocate to a southern state and play golf most of the days. Some people realize they do not want to wait that long to start a life of leisure since we do not know where we will be physically and financially at that time.
The good news is that retirement can be whatever you want it to be with a realistic plan in place.
Here is a look at 5 smart alternatives to traditional retirement.
1). Early Retirement
Early retirement is used to be a privilege of wealthy people. But right now, more people are planning to get out of the workforce before they reach their full retirement age. Early retirement is becoming a popular financial goal even for people in their 30s.
The FIRE (financial independence retire early) movement encourages frugal lifestyle habits. If you want to reach financial independence and retire early, you need to learn how to save, spend and invest smart ways. It takes years of sacrifice, discipline, and careful planning to reach this financial goal. But if you want to achieve financial independence at an early age you can enjoy your dream life much earlier.
For example, if you want to stop working at 40, you need to plan for a long retirement. You need to come up with at least 40 years of savings to cover your living, medical and other expenses. And if you want to save enough money to retire early, you need to change your spending habits and commit to a very frugal lifestyle.
Many millennials who are part of the FIRE community aim to live on 50 percent (or less) of their income and the rest goes to savings. They cut on their living and personal expenses for years to save enough money. Working out how to retire early can be challenging. That is why it is important to create a plan and then take it one step at a time.
Steps to take if you want to retire early:
- Determine your lifestyle. What do you want to do when you retire early?
- Evaluate your current financial situation. Calculate how much money you have saved, how much debt do you have, the total value of your assets.
- Estimate your total savings needs. Figure out how much money you will need to support your lifestyle when you stop working for a paycheck. As a rule of thumb, you should have 25 times of your annual spending before you retire.
- Make adjustments to your budget. Cut your expenses by downsizing, moving to a cheaper area, buying a used car, eating out less, and more.
- Get rid of debt. Pay down debt using either the snowball or avalanche method.
- Invest your funds. You should invest your savings for growth so you can generate income from your money.
But I have to admit that early retirement is not realistic or achievable for everyone.
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Not everyone wants to make lifelong sacrifices to quit their job at a young age to live a life of leisure. However, not everyone wants to wait until the mid-60s to start enjoying their retirement.
Hence, another great alternative to a traditional retirement is a mini-retirement.
A mini-retirement involves taking a short break from work or a series of short breaks. These breaks may be short as a few weeks or months, or longer as a couple of years. Basically, you take a mini-retirement when you want to get a break from your career. Also, a mini-retirement can be a solution for people who are tired or feeling that they are not taking the right path in life.
You can use a short break from the grind of a full-time job to explore the world, spend more time with kids or just reflect on what you want out of life.
But like everything else in life a mini-retirement requires a lot of planning. You need to establish why are taking a break and how to fund your time off from work, otherwise, it can become a disaster.
- Figure out how much time you want to take. This period can be between one to two months, or maybe between six months to one year.
- Estimate your living expenses. Calculate how much you need to spend on mortgage or rent, bills, insurance, food, and other daily expenses. If you will be traveling, estimate your travel expenses and add the cost of traveling to your mini-retirement budget.
- Establish your budget. Combine your living and travel expenses and multiply by the duration of your mini-retirement.
Even so, a mini-retirement sounds very attractive it might be not for everyone. It is much easier to take a mini-retirement or break from work if you are a freelance worker, contractor, or a digital nomad.
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3). Phased Retirement
Studies show that people aged 60 and older will prefer to gradually transition into retirement by working fewer hours.
The whole idea behind a phased retirement is to not wait to live your life or put off your dreams until old age. People want to spend more time with the family. They want to pursue personal interests or hobbies.
Most people want to enjoy their life while they work and not sacrifice their best years for the pure purpose of building wealth. However, only some people want to completely stop working because work plays an important role in a balanced and fulfilling life. Instead, more people prefer to ease into retirement by shifting from full-time to part-time work.
Key issues to consider that will affect your finances and lifestyle:
- Talk to your employer and find out the policies on part-time work and benefits. Depending on how many hours you want to work each month, you could be eligible for retirement benefits and health insurance.
- Adjust your budget. Part-time work means less income and savings. Come up with a plan on how to pay bills and living expenses on a reduced income.
- Consider your job options. Review your skills and knowledge and think about what jobs will help you use them.
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You work hard on your career growth, but at some point, you want to have more time with your spouse and young kids. Or maybe you need to take care of aging parents. How to plan for retirement when you can still continue to work, but have more time with your family?
Semi-retirement can be an ideal solution for those people who want to enjoy the benefits of a retirement lifestyle without completely giving up their jobs.
If you cannot reduce your hours at your current job, you can try to find a part-time job with another company. The best part is by working part-time you can continue to earn your income, increase your savings, get health and other benefits. Working only part-time can provide a perfect lifestyle balance for many people. It reduces the financial pressure on your retirement assets, keeps your mind sharp by new challenges at work, and yet allows more leisure time.
How to plan for semi-retirement:
- Think about what to do with your time. Write down your plans on a piece of paper. Make a list of your goals the same way you make a ‘to-do’ list.
- Consider a career in a new field. Try to find a job that matches your interest. Consider switching to a second career when you can use your existing skills like becoming a consultant or a tutor.
- Start a side hustle. Starting a part-time hustle like blogging could be a rewarding career change.
- Think about health coverage. You will not be qualified for Medicare if you are before age 65. Think about finding part-time work that includes health insurance. It also may be possible to get on your spouse’s insurance.
5). Never Retire
Some people already know that traditional retirement is not a final goal for them. After all, a lifestyle of leisure is not appealing to everyone. They love their jobs and prefer to continue working as long as possible. And if you are in a good health and taking care of yourself you can work as long as you can. You still need to continue saving for retirement in case of a health issue, a family emergency, or a sudden layoff. Also, you should have a plan for when to take Social Security and retirement distributions.
If none of the above-mentioned alternatives appeals to you, there is always the traditional retirement route. It means working most of your life and retiring at the full retirement age around your mid-60s. At this age you will be covered by Medicare, start living off the combined income from Social Security, pension, and your retirement savings. The good news is that with years of working and diligent retirement planning you could still enjoy a comfortable retirement.
Find your path. Now that you have more time, there is a whole new world out there waiting to be discovered. Think about whether you want to spend your free time doing something similar you did before retirement, or if you want to try something different. Write down a list of interests and activities that brings you joy even some of them you might put on the back burner for a while. Do not forget to include in your list new things you like to learn.
All those things we regret not having time to do during our working years can act as an inspiration when we transition to retirement. There are endless possibilities to explore once you have time and the freedom of retirement.
Retirement is no longer a one-size-fits-all matter. There has been a huge transformation in the types of retirement. With changes in the working environment, people structure their type of retirement to have a lifestyle they really want to live.
Have you thought about alternatives to a traditional retirement? Share your thoughts in the comments below.
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