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For many people, a traditional retirement doesn’t seem like it is in the cards. As finance expert Suze Orman explains, around three out of four people who are currently working expect that they will continue earning money after retirement. This isn’t necessarily because they want to. For many, planning to work is a necessity because saving enough for a secure retirement feels out of reach.
Orman warns, however, that these grand plans to support yourself with a paycheck during your retirement years may not end up panning out. Here’s why Orman thinks that working as a retiree may simply not be something that everyone can do, even if they want to.
The problem with planning to work for pay as a retiree
As Orman pointed out, while many people plan to work, very few people actually do. Even though around 75% of current workers expect to work during their later years, data on current retirees show that this is definitely not what happens. The reality is that just three people out of 10 who are currently retired can earn a paycheck from a job. The huge gap between 30% and 75% demonstrates that “the best-laid retirement plans aren’t guaranteed,” as Orman said in her post on the subject.
Unfortunately, life ends up being a lot more uncertain than many people would prefer, and assuming that you will work in retirement puts you at serious risk of financial hardship if it turns out that you cannot work as a result of a job loss, a need to take care of family members, or your own health issues. Orman warns that you must prepare if things do not go according to plan, and that you should look at the amount of money you expect to earn from work as a retiree and see what would happen to your retirement if those paychecks don’t end up coming in.
How can you be better prepared for retirement in case it turns out you can’t work after all?
Since you can’t count on being able to work, the reality is that you need to save enough that you will be OK financially if you can’t keep a job as a senior. This means that you should set a savings goal that would give you a nest egg large enough for your investments to replace around 30% to 40% of your pre-retirement income at a minimum. If you do this, then your investment income can combine with Social Security benefits — which replace about 40% of pre-retirement pay — to give you enough to live on.
Once you set your ultimate savings goal, you can use an online calculator to work backward and figure out how much you need to invest each month, given how much you have saved already and your investing timeline. Finding out your target number helps you to determine if it is realistic or not. If you can hit your savings target by taking advantage of tax breaks and benefiting from the power of compound interest, then you are in good shape. You can set up automatic contributions to a 401(k) or an IRA, and you should be OK as a retiree even if you can’t work despite your plans.
If you find that your savings goal is out of reach, then you’ll need to make some changes. This could mean picking up a few hours per month of work at a side gig to save enough for your retirement. Or you may have to make lifestyle changes, like driving a cheaper used car instead of your current new vehicle. It may not feel good to make these lifestyle changes now to enable retirement savings, but it is far better to do them by choice now than to have to live on a tiny income as a senior because you didn’t save and can’t work as you’d hoped.
The sooner you can make these changes and start working toward retirement, the easier it is going to be to accomplish your goals and make sure you can support yourself even if you can’t work, as Orman warns. You should consider meeting with a financial advisor if you need help creating a plan that will give you the security you deserve, even if holding a job as a retiree turns out to be a no-go.