Is retirement too risky?

Economic prospects over the next few years don’t look good. If you’re in your late-50s or older, should you retire and take life easy, while you’re in relatively good health?

The thought of quitting work while still mentally and physically active in mind and body can make anyone nervous. But the older you get, the more your days seem limited and precious, and you want to spend them not inside a windowless cubicle at the beck and call of other people.

When I was growing up in the 1950s and 1960s, most folks I knew were poor and worked until physical infirmities or ill-health stopped them. Few people had the luxury of a high level of saving to think of retiring, say at 60 or 62.

Today, retiring when you reach 60, seems to be the expectation, whether you’re working in an office or driving a bus. To minimise the risk, there are some lifestyle trends to take into consideration when you plan your retirement:

• You will tend to live longer
• You are more self-indulgent.
• Accordingly, you need more money than you thought, for a comfortable retirement.

Why do you want to retire, and what do you plan to do with your free time, are also important questions that you must answer clearly and in detail. Simply ceasing to work will not lead to a fulfilling retirement lifestyle. Be sure you have something to do that occupies your time and interests and takes advantage of your skills and past experience.

The typical post-working years can be divided into three phases:

1. The active years immediately on retirement. This phase is typified by active behaviour, when you travel, take up water colouring, read the classics, and spent time on activities that you were constrained by a full-time job from doing.

2. The legacy years, when you are less self-indulgent and more concerned with what you can contribute to society. Retirement counsellors say in this second phase, plans are made, and assets allocated for the third and final stage.

3. The final years when life’s endgame is played out. If you retire at 60, you would probably have anywhere from 25-30 years left. So, in your retirement planning, you must also consider not just how long you might live, but how you are going to live out the final years. There is a strong possibility of ill health requiring hospitalisation and long-term nursing care.

It is difficult, but necessary to understand the fact that as you age and your health declines, you will have to spend money to take care of medical and healthcare expenses.

Do you really know how much you will need? Before you can answer that, you need to answer these money questions first:

Can a bad economy destroy the value of a retirement nest egg?

Don’t be lulled into a false sense of security by projections of average returns on your investment. An “average” return doesn’t take into account that there will be several years of below-average returns that could force you to dip into your principal amount. And when there are too many below-average years, your principal amount may dwindle greatly.

Will inflation cut down your purchasing power?

Watch out for the ravages of inflation. Your investment may earn decent returns, but if the cost of living increases at a faster pace, your retirement comforts can be jeopardised. So you will need assets that will grow over time and provide a hedge against inflation.

How reliable is your income?

Weigh this carefully. As the current financial meltdown has shown, retirement savings can disappear overnight. Not only do you need assets that will increase in value (your property, for instance), you also need assets that won’t shrink. Currently, no one knows what investments can generate returns.

What if you retire and then, can’t make ends meet? How do you un-retire?

One strategy is to maintain contact with the working world by lining up part-time employment during retirement.

A second strategy is to acquire knowledge and skill in a profession or industry where age is not unwelcomed, such as in teaching, consultancy, accounting, research, writing, nursing, or managing a charity programme.

I am tired of struggling: Take a look at the poster below, displayed on a MRT train in Atlanta. It is a testimonial from grandmother Toni Nelson, who enrolled in a nursing course, so she could become a neonatal intensive care nurse, and earn money to take care of herself. See the bottom closeup picture, to read what she says. – I shot the photo in February 2004, while riding the train to visit Margaret Mitchell's house. (Mitchell is the author of Gone With the Wind.)