MONEY early retirement

It’s Time to Rename Retirement

Senior doing yoga on beach
Image Source—Alamy

People change their minds — a lot — when it's time to stop working. Let's acknowledge how flexible retirement can be.

Some clients dream of retiring early. Others would like to work forever if they could. And a third set of clients…well, they’re on the fence.

Let me tell you about one of my clients who falls in that third category, and what my experience with him says about retirement.

When John and his wife (I’ll call them John and Jane) became clients of my firm two years ago, they were both in their early 50s. John, who had been retired for eight months, wanted us to evaluate whether he would be able to stay retired comfortably. Jane, who was still working, planned to stay at her job for another five years.

After crunching the numbers and running through several scenarios, we found that John — and Jane, too, if she wanted to — could retire immediately and most likely not have to work again.

The joy in the room was palpable as John described all the things he wanted to do with his time: Spend more time with his aging parents and his college-age daughter, spend more time fishing, and manage his real estate investment properties.

Fast-forward six months later. John called to let us know that he was going back to work for the same company from which he had retired. “One myth I’ve found out: You think you’re going to catch up on all those projects you’ve put off,” he told us. “You don’t.”

So we revisited John and Jane’s financial plan. Of course, more income made their situation look even better. John felt satisfied and happy to have his old routine back.

Ten months later, we got another phone call from John. He had changed his mind. Once again, he decided he was ready to retire. So we revisited the plan another time. Again, it was all systems go.

“Man, you just made my day,” said John. “No, I take that back. You just made my year!”

Sometimes, like John, we don’t know what we truly want. We grow up thinking we will work as hard as we can, so we can reach our golden years and retire to a life of vacationing, fishing, biking or fill-in-the-blank. And then, like John, we realize we’re not so sure.

For many retirees this is becoming more common. Having time to truly dissect your desires often helps to further clarify your true passions and what fulfills you on a deeper level. Walking through options can help provide peace of mind through these transitions. In today’s world we are seeing more and more of this type of trial-and-error decision-making about retirement. Retire for a while, only to go back to work, and then retire again so you can have control of your time and do things you truly enjoy.

Retiring these days is really just gaining the freedom to do what you want, when you want. It could be part-time work, volunteering, starting a business, or, in John’s case, going back to your old employer for a while.

Going forward, maybe retirement should be renamed “flexibility,” since that seems to be a more appropriate description for the way retirees are actually treating it. So right now, I think I will go spend some time planning my own “flexibility.”

——————–

Smith is a certified financial planner, partner, and adviser with Financial Symmetry, a fee-only financial planning and invesment management firm in Raleigh, N.C. He enjoys helping people do more things they enjoy. His biggest priority is that of a husband and a dad to the three lovely ladies in his life. He is an active member of NAPFA, FPA and a proud graduate of North Carolina State University.

MONEY Social Security

When It Comes to Claiming Spousal Benefits, Timing Is Everything

Seemingly straightforward questions about claiming Social Security spousal benefits can wind up becoming complicated in a hurry. Here's one answer.

Recently I received a question from a reader that opens up all sorts of concerns shared by many couples:

I am four years older than my husband. I have reached my full retirement age (66) in June 2014. My own benefit is very small ($289/month), since my husband is the bread earner. I have been mostly a stay-at-home mom.

Should I just claim my own benefit now and wait four more years for my husband to reach his full retirement age, then apply for spousal benefits? That means he will get about $3,000/month, and I will get half of his benefit.

Or should my husband apply for early retirement now, at age 62, so I can apply for my own spousal benefits? He can then suspend his benefit and wait four more years until his full retirement age to get more money.

Please advise.

First, your husband should not apply for early retirement at 62. If he does so, his benefit will be reduced by 25% from what he would get if he waits until age 66 to file, and a whopping 76% less than if he waits to age 70, when his benefit would hit its maximum.

Further, if he does file at 62, he cannot file and suspend, as you suggest. This ability is not enabled until he reaches his full retirement age of 66. So if he files early, he will be triggering reduced benefits for the rest of his life. And because his benefits are set to be relatively large, this reduction would involve a lot of money.

If your household absolutely needs the money now, or if your husband’s health makes his early retirement advisable, he could file early and then, at 66, suspend his benefits for up to four years. They would then grow by 8% a year from their reduced level at age 62 – better than no increase, but not nearly as large a monthly benefit as if he simply files at age 66 and then suspends.

I normally advise people to wait as long as possible to collect their own benefits. But this is probably not the best advice in your case. Here’s why:

When your husband turns 66 in four years, it’s clear that you should take spousal benefits based on his earnings record. You say he would be entitled to $3,000 a month at that point and that you stand to get half of that, or $1,500 a month. That $3,000 figure seems a little steep to me, so I’d first ask you to make sure that is his projected benefit when he turns 66 and not when he turns 70.

In either event, however, it’s clear that your spousal benefit based on his earnings record is going to be much, much higher than your own retirement benefit. Even if you waited to claim your own retirement benefit until you turned 70, your spousal benefit still would be much higher.

Thus, you’re only going to be collecting your own retirement benefit for four years, from now until your husband turns 66. Even though your own retirement benefits would rise by 8% a year for each of those four years, those deferred benefits would never rise enough to come close to equaling the benefits you will get by filing right away.

So, take the $289 a month for four years, and have your husband wait until he’s 66 to file for his own retirement benefit and enable you to file for a spousal benefit based on his earnings record. He may decide to actually begin his retirement benefits then or, by filing for his benefit and then suspending it, earn annual delayed retirement credits of 8% a year, boosting his benefit by as much as 32% if he suspends until age 70.

If he does wait until 70, he will get his maximum monthly benefit. But you also will benefit should he die before you. That’s because your widow’s benefit would not just be equal to your spousal benefit but would equal his maximum retirement benefit. So, the longer he waits to file, the larger your widow’s benefit will be.

Philip Moeller is an expert on retirement, aging, and health. He is an award-winning business journalist and a research fellow at the Sloan Center on Aging & Work at Boston College. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Related:
Here’s How to Avoid Making a Huge Social Security Mistake
Here’s How to Handle Social Security’s Trickiest Claiming Rule
How to Claim Social Security Without Shortchanging Your Spouse

MONEY Social Security

How to Claim Social Security Without Shortchanging Your Spouse

Deciding when to take Social Security can have a big impact on your family's income. Here's what you need to know.

When it comes to claiming Social Security, millions of people make this huge mistake: overlooking the impact on their family’s income.

Many people don’t realize that Social Security pays a host of benefits beyond your individual retirement income. The program may also pay so-called auxiliary benefits to your spouse, your children and even your parents. A separate program may provide auxiliary benefits if you become disabled, and, in some cases, if you are divorced or if you have passed away. The amount of these benefits is tied to your earnings record—the wages you’ve earned over a lifetime during which you’ve forked over Social Security payroll taxes—and your decision on when to file your claim.

To make the best choices about when to claim Social Security, anyone who is, or was, married, and especially those with children, needs to consider not only their own retirement benefits but also benefits that might be available to family members. This is especially true of survivor benefits.

Let me give you an example. (I wish it was simple but very little about Social Security is simple.) Say you’re 62 and your wife is 58. You’ve heard that delaying Social Security will raise your income but you want the benefits now, so you begin looking into the process of claiming them.

If you file for benefits at 62 (the earliest claiming age unless you’re disabled or a surviving spouse), they will be reduced by 25% from what you could get at full retirement age, which is 66 for people now approaching retirement. What’s more, that payout would be a whopping 76% less than if you waited until age 70 to file. To use convenient numbers, if your benefit at 66 would be $1,000 a month, you would get only $750 a month if you filed at age 62 but $1,320 a month if you waited until age 70.

Perhaps you’re okay with receiving lower income, if you start getting it sooner. But how about your family members? These reductions would also apply to their auxiliary benefits.

The most dramatic impact of early claiming decisions affects widows. Husbands are overwhelmingly likely to begin taking their retirement benefits before their full retirement age, according to Social Security data. Yet husbands are likely to die several years before their wives, statistics show, which leaves many widows struggling on small incomes.

Granted, many women have salary records of their own, and as their wages have increased over the past 30 years, so have Social Security benefits. But many women now reaching retirement age have not accumulated Social Security benefits equal to that earned by their husbands.

That inequality is a real problem for widows. While they both are alive, each spouse can collect his or her own Social Security benefit. But after one dies, the surviving spouse can only collect the greater of the two benefits. This is likely to be the husband’s benefit, even if it’s been reduced because he filed for it early.

As a result, millions of widows in this country are receiving reduced survivor benefits based on their late husband’s earnings record. Had he waited to file, their survivor benefits would have been higher—much higher in many cases.

The trend is so pronounced that the agency devised a special way of calculating benefits to try and ease its impact. It’s called the Retirement Insurance Benefit Limit, or RIB-LIM in the agency’s acronym-crazy jargon. It’s also known as the Widow(er)’s Limit.

When you make the decision when to claim Social Security, make sure it’s in the best interest of everyone in the family. To really understand this decision, you’ll need to know about Social Security’s family maximum benefits. Tune in next week to learn how they work.

Philip Moeller is an expert on retirement, aging, and health. He is an award-winning business journalist and a research fellow at the Sloan Center on Aging & Work at Boston College. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

MONEY retirement planning

The One Retirement Question You Must Get Right

Man slamming his head into chalkboard of theorems in frustration
Getty Images

Figuring out how big a nest egg you need is a huge financial planning challenge. Here are some helpful tips from an expert who retired at 50.

How much money do you need to retire? This is one of the most difficult questions in all of financial planning. Countless words are written, endless fees are charged, and plenty of sleep is lost, just trying to answer it!

But I’ll tell you a secret—a truth that none in financial services and few in the financial media will admit. We don’t know how much you need to retire! Beyond some broad ranges that have worked in the past, it’s practically impossible to calculate the precise amount of money needed to carry you through a retirement lasting decades or more into the future.

Why? Because, in addition to predicting a host of smaller factors, computing how much you need to retire requires pinning down two huge and essentially unknowable variables: the length of your life, and the real return on your investments. (That’s the actual return, after inflation.)

If you misjudge your life expectancy by even a few years, you could potentially die broke, or with tens of thousands of unspent dollars on the table. If you misgauge your real rate of return by just 1% (and the pros miss it by more than that, all the time), the error in a half-million dollar portfolio over a 30-year retirement will be about $175,000—one-third of the starting value, and a lot of money to go missing!

So there can be no precise answer to this question. And, yet, you must answer it, in some fashion, if you don’t want to go on working forever. So where do you begin?

As I’ve written before, knowing your expenses is an essential first step to retirement planning. You simply must know what it costs you to live each month, in order to get any sense for what you must save to retire.

From that monthly expense number you can subtract any guaranteed, inflation-adjusted income that you are certain to receive in retirement: Social Security for many of us, pensions for a fortunate few, and annuities for those who buy them.

Your remaining expenses must be funded from your investment portfolio. The traditional approach has been the 4% Rule, which states that you can withdraw 4% of your portfolio in the first year, then adjust that withdrawal amount for inflation each year, without fear of running out over the course of a 30-year retirement. However, some experts say this rule is too optimistic for the current difficult economic times, with low interest rates and high market valuations. On the other hand, if you retire in better economic times, or if you choose to annuitize your assets, the rule might be too conservative. (You can find online tools that will let you see the impact of using different economic assumptions—I mention three of the best retirement calculators in this article.)

Boiling down all the research papers, case studies, and opinions that I have read on this topic—and I read about it nearly every day—I can tell you this: The safe withdrawal rates from your retirement savings probably range from about 5% on the optimistic side to about 3% on the conservative side.

That means, for example, if your living expenses not covered by guaranteed inflation-adjusted income were $3,000 a month in retirement, then you would need between $720,000 in savings on the optimistic side, to $1.2 million on the conservative side, to provide for your lifestyle over a several-decade retirement.

Thus if your savings were in that range you could consider retiring. But there is more to it than that, especially for an early retiree. You would also need to factor in the risk that you would run low, and your ability to do something about it. That risk would be a function of the economic environment you retire into, and the longevity factors in your family. The ability to do something about it would be a function of your age and health at retirement, your professional skills, and your lifestyle flexibility.

In the end, there is no simple answer to the question “Do I have enough to retire?” But, there is a range of possibilities, based on historical data and your own risks and capabilities. And, even after you’ve made the retirement decision, you still need to assess and drive your retirement, especially in the early years. So, once you’ve started on the retirement journey, don’t fall asleep at the wheel!

Darrow Kirkpatrick is a software engineer and author who lived frugally, invested successfully, and retired in 2011 at age 50. He writes regularly about saving, investing and retiring on his blog CanIRetireYet.com. This column appears monthly.

MONEY Retirement

Here’s Why More Americans Are Retiring Earlier Than They Expected

More workers have retired early than late since the Great Recession, new Fed Data show. But it's not a happy story.

It seems counter intuitive: Of all Americans who retired since the Great Recession, more retired earlier than expected than later than expected, a new Fed report shows.

This finding appears to be at odds with everything we’ve heard about the growing need to delay retirement and — my all-time favorite oxymoron — work in retirement.

Yet the numbers don’t lie: 15% of those who have retired since 2008 did so earlier than planned; only 4% did so later than planned. This is according to the latest Fed data, which goes to September 2013.

The data clearly show what we all know: In order to make ends meet, workers intend to stay on the job longer, not shorter. Two in five workers 45 or older plan to delay retirement. Among pre-retirees 55 to 64 years old, only 18% expect to retire on time and stop working altogether. A quarter expects to work as long as they can and another quarter expects to work part-time or become self-employed in retirement.

Taken as a whole, this can only mean that we’ve seen a lot of forced retirements. In the lousy job market of the past few years, millions of older workers downsized out of employment couldn’t find suitable work. They retired rather than keep up the search or work for significantly less. That’s not good, and it helps explain other sobering statistics in the report.

Nearly 40% of households say they are just getting by or struggling to make ends meet, underscoring the uneven recovery. The rebound in stocks has mostly benefited the investing class. Home prices have improved, and that has helped a wider swath of the population—but not as much as you might expect. Of those who have owned their home for at least five years, about half say the value is lower than in 2008.

Meanwhile, many households are suffering from tight credit, student loans and poor retirement savings. Some of these pressures have eased in the past 12 months. The economy grew at a healthy 4% pace last quarter and mortgage lending has loosened up.

But a quarter of households have some form of student debt with an average balance of $27,840. One in five has fallen behind in payments on this debt. At the same time, 31% of workers say they have no retirement savings or pension, including 19% of those aged 55 to 64. Almost half of adults aren’t even thinking about planning for retirement. And yet, as the report shows, retirement may be coming sooner than they expect.

 

 

MONEY early retirement

How Much Money Do I Really Need to Retire at 55?

140605_AskExpert_illo
Robert A. Di Ieso, Jr.

Q: I’m 40 and can’t imagine working till I am 65. If I want to retire in my mid-50s, how can I make sure I have enough money to live a comfortable lifestyle?

A: How much you need to put away depends on the kind of lifestyle you want in retirement. A general rule of thumb is that you’ll need to replace 70% to 80% of your pre-retirement income to have a similar standard of living when you retire. So if you earn $100,000 a year, you’ll need roughly $80,000 in annual income. Some of that will come from Social Security (once you reach retirement age) and a pension, if you get one, so perhaps your portfolio will need to produce $50,000 to $60,000 of that income.

You’ll probably need less than your pre-retirement income because you’re no longer socking away a big chunk of your salary for retirement—and if you are aiming to retire early, you should be maxing out all your savings options and more. Your income taxes will likely be lower and many of the costs associated with working, such as commuting and eating lunch out, will disappear.

But if you retire at 55, you’re looking at funding four decades of retirement. That means you’ll need a much bigger cash stash than someone with a standard 30-year time horizon, says Charles Farrell, CEO of Northstar Investment Advisors and author of Your Money Ratios: Eight Simple Tools for Financial Security.

If you work till the traditional retirement age of 65, you should have 12 times your annual household income saved, says Farrell. For someone earning $100,000 a year, that’s $1.2 million (his figures take Social Security benefits into account). But if you want to quit work at age 55 and replace 75% of your income, you’ll need 18 times your annual income or $1.8 million. That assumes a 4% annual withdrawal rate, adjusted for inflation. “Not only does your money have to last longer but as you draw down your nest egg, your savings has less time to grow,” says Farrell.

If you’re not on track, it’s not too late. As you hit your peak earning years and big expenses fall away, such as college tuition for your kids, you may be able to power save, putting away much bigger chunks of money. Or you can adjust your goal. “Maybe 60 or 62 is more realistic than 55 or you can get by on less than you think,” says Farrell.

If you push back retirement to age 62, you’ll need 16 times your annual salary saved. If you really want to quit work at 55 and you’re willing to live on 60% of your pre-retirement income, you’ll need 15 times your annual income. Or if you can get by on 50% of your household income—say you pay off your mortgage or you significantly downsize your home to cut your post-retirement expenses—a nest egg of 12 times your final income may be enough.

Early retirement requires a willingness to stick to a lifestyle that allows you to save diligently throughout your career, while avoiding money drains like high interest rate debt. If this is your dream, it’ll be well worth the effort.

TIME

The World’s Second-Richest Man Thinks You Should Work Only 3 Days a Week

Mexican businessman Slim attends the media after talking in the 20th annual meeting of the Circulo de Montevideo Fundation in Luque
Jorge Adorno—Reuters Mexican businessman Carlos Slim attends the 20th annual meeting of the Circulo de Montevideo Fundation in Luque, Paraguay July 17, 2014.

But retirement would be delayed until age 70 or 75

Carlos Slim, the world’s second-richest man finally said the one thing we’ve all been waiting for a self-made billionaire to say: work less. Way less.

At a business conference in Paraguay, the telecommunications magnate said it was time for a “radical overhaul” in the way people work, the Financial Times reports: people should only work three days a week.

“With three work days a week, we would have more time to relax; for quality of life,” Slim said. “Having four days [off] would be very important to generate new entertainment activities and other ways of being occupied.”

Well said, Mr. Slim. Well said.

But there’s a catch: in exchange for working fewer days a week, we should work for more of our lives. Instead of retiring at 50 or 60, workers should work until the age of 70 or 75, the 74-year-old Slim said.

Slim is the CEO of Telmex, which recently instituted a labor contract for workers to begin in their late teens and retire before they turn 50, with the option of continuing to work past retirement at four days a week for full pay.

Slim is worth upwards of $80 billion, according to Forbes, and is a major philanthropist and passionate Rodin collector.

[FT]

MONEY early retirement

How to Figure Out Your Real Cost of Living in Retirement

Your retirement savings “number” gets a lot of press. But your expense number is even more important, especially if you retire early.

Many financial advisors say you’ll need some fixed percent of your previous income in retirement—often 80% is considered “reasonable.” But that’s nonsense. What it costs you to live in retirement, or before, is not a function of how much you make! There are millionaires who live like college students, and college students who live like millionaires—for a while anyway, on credit.

Where are you on the lifestyle spectrum? To get serious about retirement planning, you’ve got to have an accurate picture of your monthly living expenses. You need to know your bare minimum or fixed expenses, your average or normal expenses, and your ideal expenses—allowing for some luxuries.

Spending is a personal area, so everyone’s pattern will be different. But on average the first phase of retirement is when you’re likely to spend the most, since you’re finally free to travel, dine out and enjoy other leisure activities. Among older Americans, average annual expenditures peaked at about $61,000 for those in the 45-54 year age range, according to the latest data from the Consumer Expenditures Survey. By ages 55-64, spending dipped to $56,000, and down again to $46,000 between ages 65 to 74. At 75 years and older, average spending was only $34,000, though health care expenses may spike up for many.

We are in our mid-50’s and live a modest but comfortable lifestyle, which currently costs us about $4,500 a month, in addition to housing. We rent a smaller, two-bedroom house (about $1,500 monthly), and share a single gas-efficient car ($370 a month, including gas, insurance and repairs). But we eat well, own some nice things, and have plenty of fun—mostly free or cheap outdoor activities. And our living expenses run about 25% above the national average for our age.

This past year we moved to our ideal retirement location. So we’ve had to spend a bit more than usual due to the relocation. But these have generally been one-time home or personal expenses—not recurring expenses that would inflate our lifestyle forever more.

Health care costs remain a concern, since we are too young for Medicare. Fortunately, I was able to get coverage through my wife’s retirement health plan, thanks to her former career as a public school teacher; we pay $1,100 a month on average for premiums, co-pays, deductibles and the like. That’s one of our larger expenses, but it is manageable, for now. (For more on our spending in early retirement, see my blog here.)

If you’re willing to live in a cheaper area, buy used, and eat simpler, you can probably live on much less than we do. On the other hand, if manicured retirement communities, luxury vehicles, and international travel are your idea of retirement living, you could need quite a bit more. In most surveys of consumer expenses, the biggest items are housing and transportation. So, if you want to optimize your retirement lifestyle, start with your home and vehicle.

Without a complete understanding of how much it costs you to live, your retirement planning can’t get off the ground. The best way to determine your expenses is to actually keep track of them for at least a year, as you approach retirement. You can record expenses using dedicated tools like Quicken on the desktop or Mint on the web, or you can use an electronic spreadsheet or paper journal.

As an engineer, tracking expenses was second nature to me. But what if you aren’t the detail-oriented type? You could estimate your expenses based on those government averages above, but in the long run you’ll need more accuracy to be confident about your own situation.

One approach is to sit down with your checking and credit card statements, and use them to estimate a monthly or annual amount for each important budget category. You can start with this short list: housing, transportation, food, health care, entertainment, and personal expenses. Just don’t forget those less-frequent items such as home and auto repairs, vacations, and property taxes!

Your retirement savings “number” gets a lot of press. But even more important than that is your expense number. Understanding your expenses is a critical stepping stone to building wealth and retiring comfortably. If you still don’t know where your money goes, why not get started today?

Darrow Kirkpatrick is a software engineer and author who lived frugally, invested successfully, and retired in 2011 at age 50. He writes regularly about saving, investing and retiring on his blog CanIRetireYet.com. This column appears monthly.

MONEY early retirement

4 Secrets of Financial Freedom

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Feng Yu—Alamy

You can shorten the path to early retirement if you start with the right strategies.

Ever since I retired at age 50, I’m often asked how I managed to reach financial security. Looking back, I see that the key factors fall into four categories—family support, career choice, money management, and personal habits and attitudes. Here’s how you can use these building blocks to reach your goals.

Start from a Strong Foundation
Some of us were fortunate to start out in families that instilled integrity, prudence, and hard work. If that’s your experience, you can be grateful. But, if not, then it’s still within your power to cultivate those qualities now. Not only will that create the conditions for your own financial success, but it will benefit everyone around you as well.

Throughout you will need patience. Typically the personal and financial decisions that will pay off in the long run require sacrificing a little today. Patience helps you live with the reality that true rewards usually require some short-term discomfort.

Choose a Career Wisely
Your choice of career is one of the most important decisions you’ll ever make. You need to love your work if you want to be great and prosper from it. So pay attention not only to your gifts, but to what makes you enthusiastic about getting up in the morning. Then, find a career path that plays to those strengths.

If you’re just starting out, and it suits you, a high-paying career in a technical or professional field will clearly advance your cause. Competence in math or technology can be a first-class ticket to building wealth. But, if that’s not possible, at least be aware of the financial implications of your college education and early career choices. A graduate in an esoteric major with five digits of student debt starts out life doubly handicapped. You can pursue your passions, integrate them with a professional track, and stay out of significant debt—but only if you make informed choices.

If you’re already in a career, look for mentors and other professional relationships that complement your skills and personality. Having been on both sides of the equation now, I can tell you that older, more experienced people generally enjoy counseling a talented and enthusiastic newcomer. It’s a relationship that pays dividends on both sides. So be open to wisdom when it’s offered. You don’t have to take every piece of advice, but it can be your starting point.

Learn to Manage Money
You might start out with a great family foundation. You might have a high-paying career that you love. But unless you live on less than you make, it won’t put you any closer to financial freedom. In fact, if you develop expensive tastes in houses and cars, and need to look as affluent as your neighbor, you could wind up worse off financially—no matter how much you make. You can start heading in the right direction by simply tracking your expenses, as well as learning about saving and budgeting. Identify the few areas where money spent truly pays off in better quality of life for your core interests. Spend there, and cut back everywhere else.

Next, find a mentor to help you become a confident investor. You need to master any fear of stocks, so you can profit from them in the long run. Offset the risk of stocks by allocating into other asset classes as well. Start small and carefully, but do start. Learn and abide by a few bedrock investing principles: diversification, patience, simplicity, low expenses. Track your net worth and your overall portfolio return each year, so you know what direction you’re going, and why.

Related: Find the right mix of stocks and bonds

Once your career and finances are on track, you can explore more entrepreneurial paths for wealth building—perhaps by owning a small business or real estate. These can leverage your time and money, getting you to financial independence years earlier. They can be fun and rewarding too!

Keep Your Perspective
Even with all these potent ingredients for success, be sure to take life one day at a time. Again, cultivate patience. You’ll need it for the long stretches.

Remember the goal—financial independence —but don’t obsess on it. Don’t sacrifice the present for the future; it won’t turn out as planned anyway. Make time for your loved ones and meaningful activities, even if you must work longer in the end. As great as it is to achieve financial freedom and retire early, you don’t want to arrive there having missed out on life along the way.

Darrow Kirkpatrick is a software engineer and author who lived frugally, invested successfully, and retired in 2011 at age 50. He writes regularly about saving, investing and retiring on his blog CanIRetireYet.com. This column appears monthly.

MONEY working in retirement

How to Find Happiness in Your Second Career—and Earn Money Too

These days, the retirement-planning conversation goes something like this: How can I earn an income after my initial career and give back at the same time?

This article was originally published at NextAvenue.org.

Cindy Lennartson is a 48-year-old library specialist at the University of Texas Libraries, in Austin. She has worked for a university library system for 25 years and is excited about retiring from there at 52 (when she can collect her pension) to start her next career. But she’s not quite sure how to do it.

After Lennartson read my inaugural column on rethinking retirement, “Why I’m Not Buying the Retirement Gloom,” she emailed me for insights on how she might make, and embrace, a life transition. I’ll offer them, as well as advice for others contemplating their move into “unretirement,” shortly.

The Lure of Trying Something New

To find out more about Lennartson’s situation and the future she envisions, I spoke with her. She told me that she’s a recently divorced mother of three who has loved her job and, until a few years ago, believed she’d retire at 62. But the lure of trying something new has convinced Lennartson to start reimagining her next chapter.

(MORE: Busting the Myths About Work in Retirement)

With her new plan of “retiring” at 52 when her children are out of the house, Lennartson said, she can use the next four years to find an encore career that will be meaningful and will come with a paycheck. “I’m rethinking the whole retirement thing — what else do I want to do,” she says. “I’m in the exploratory stage.”

Lennartson is far from alone. For more than three decades, the national conversation among people contemplating retirement was dominated by the haunting question: What is my number? Of course, the sum of savings we’ll need to live comfortably when we’re no longer working is disconcertingly uncertain. There’s no way of knowing what the market will return, let alone how much money will be enough to fund a lifestyle and medical bills.

The New Retirement Question

That’s why, these days, the retirement-planning conversation is increasingly focused on a different question: How can I earn an income after my initial career and give back at the same time?

Recent polls have found that most boomers expect to earn a paycheck during retirement. For example, 72% of pre-retirees age 50 and over just surveyed by Merrill Lynch and the Age Wave consulting firm said they want to work during the traditional retirement years. (You can read more about the survey in the Merrill Lynch report: Work in Retirement: Myths and Motivations, Career Reinventions and the New Retirement Workscape.)

What I found particularly striking in that survey was that many of the respondents said they see retirement “as a chance to try something new and even pursue careers dreams they were unable to explore during their pre-retirement years,” according to the report.

(MORE: Bright Spots and Challenges of Growing Older)

The Payback for Working in Retirement

The personal financial return from earning even a slim paycheck well into the traditional retirement years is big.

Your savings can continue compounding and you’ll live off your accumulated assets for a shorter period of time. A job can also allow you to delay filing for Social Security. Benefits are more than 75 percent higher if you start claiming at age 70 than at 63.

The difficult issue, as Lennartson has discovered, is figuring out what to do next — locating a paying gig that is also engaging.

Lennartson is smart to have a four-year exploration horizon and I encourage you to do the same. “You should be looking for the kind of jobs you could do that are challenging and interesting and offer an acceptable income,” says Arthur Koff, the septuagenarian founder of Retired Brains, an online job and advice portal. “The time to do it is while you’re working.”

(MORE: Change Careers With the ‘Sugar Grain’ Principle)

Why Planning Ahead Can Help

Making inroads before you retire can also help make you more valuable in retirement, as Jake Warner, the founder of Nolo.com, the self-help legal publisher explained to me.

“Let’s say someone thinks of themself as an environmentalist and dreams about working in environmental causes when they retire. But because of work, saving money, raising kids — all the pressures of daily life — they don’t get engaged,” said Warner. “Now they’re 70 and they have time. They head toward an environmental group they admire and say, ‘Here I am. How can I help you?’ The answer is going to be probably not much. Now, take that same person who gets involved with several local environmental groups in their 40s or 50s. At age 70, they’re valued and they’re needed. They earned it.”

The Librarian’s Encore Career

What might Lennartson do for her encore career? Well, she currently volunteers at a nonprofit, recording incarcerated fathers reading to their children and that’s an activity she finds deeply fulfilling. Perhaps there’s a paying job for her with the nonprofit or a similar endeavor.

Alternatively, since her undergraduate degree was in Spanish, she could try to land a job that would let her use her language skills.

Whatever she decides, a part-time gig would probably be best, since Lennartson wants the freedom to travel with her daughter, an activity they enjoy doing together.

Part of the equation revolves around her finances.

Running the Numbers

Lennartson had initially thought she would keep her house in retirement so her children would have a bedroom to come back to. Now, with her new next chapter mindset, she wonders if maybe just a couch is enough. A move into a smaller place would lower her expenses, giving her greater financial freedom.

Henry “Bud” Hebeler, founder of the retirement planning website Analyzenow.com, recommends Lennartson run the numbers to see how much downsizing will boost her cash flow. (That’s a useful site for anyone over 50 noodling a next act.) When she gets closer to making a shift, Lennartson could run her financial blueprint by a professional planner, he says.

As Lennartson is finding, transitions can be tricky and the process takes time. But they’re also liberating. “I feel like I am in college, so much is open to me,” says Lennartson. “It’s like I’m 21 or 22 once again,” she says. Now, that’s exciting.

Chris Farrell is economics editor for APM’s Marketplace Money, a syndicated personal finance program, and author of the forthcoming Unretirement: How Baby Boomers Are Changing the Way We Think About Work, Community, and The Good Life. He will be writing on Unretirement twice a month, focusing on the personal finance and entrepreneurial start-up implications and the lessons people learn as they search for meaning and income. Tell Chris about your experiences so he can address your questions in future columns. Send your queries to him a tcfarrell@mpr.org. His twitter address is @cfarrellecon.

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