By Chad Hamilton, CFP, CAP
Note: At the end of this article we have created a short assessment that will help clarify your own vision for the next phase of life!
Retirement is the lynchpin of financial planning. All other aspects of personal finance are contingent on it. Since it is such a common term, there’s a tendency to assume we all know what it means.
It would be a big mistake to take the word retirement for granted, however, because it means very different things to different people. Therefore, we need to ask the question:
“What does retirement mean to you?”
As we consider the concept, there are two broad ways to think about it:
1) To retire means to withdraw from office or business or active work life, usually because of age. It is a time of life to relax and partake in leisure and travel. This is a standard definition of the term. Retirement is synonymous with retreat and withdrawal.
2) To retire is to become financially independent. It means you work because you want to; not because you have to. Life after retirement may look a lot like life before retirement but the key is an internal freedom that stems from not being financially dependent on employment.
First of all, we should recognize that the first definition is by far the most common understanding of the term. It is what the vast majority of people mean when they mention the word retirement. It is also an antiquated notion and a potentially harmful one.
The word “retirement” was popularized in the United States in the 1930’s when President Franklin Roosevelt was instituting the Social Security system. The retirement age for Social Security benefits was 65 and, at that time, the average life expectancy was 62. So, if you were in the fortunate minority that lived to see retirement, it was typically not for more than a year or two.
Think of how different it is today. A 65 year-old couple has about a 50% chance that at least one of them will live to age 90. Now, with quite a number of people retiring even before 65, it is certainly reasonable to plan on 30-40 years in retirement.
But even aside from the big changes in life expectancy over the last 80 years, there is good reason to believe we’ve outgrown the term. One hundred years ago, the average worker was engaged in manual labor, often in factories or manufacturing plants. That type of work meant that a 65 year-old could not compete with the productivity of a 25 year-old. The work environment for most of us has changed a whole lot since then.
Mitch Anthony, author of The New Retirementality, put it this way:
“We have been hanging onto that concept, but it no longer makes sense because most of us no longer trade our physical capacity for a paycheck. We trade our intellectual capacity and our relational capacity for a paycheck.”
Even if you set aside this idea that we’ve outgrown the traditional understanding of the word, you still have a major problem. The mere notion of retirement in the traditional sense of the word is nonsensical if work actually matters. What if the work that we do is not merely a means to an end, but instead brings happiness and meaning to us individually and provides value to others?
Let’s say you have the opportunity to do some kind of intrinsically valuable work that leverages your unique skills and abilities. At what age would you want to stop doing that?
Blaise Pascal in his Pensees declared,
“Nothing is so intolerable…as being fully at rest, without a passion, without business, without entertainment, without care”
The traditional notion of retirement means to withdraw and that’s a poor premise for entering a new phase of life. It’s a negative emotion, and no creative thought develops out of a negative impulse. Yet, that is exactly what the first definition of retirement is all about: what life is not like. It does not provide a positive vision.
Each of us need to redefine what retirement really means. It’s about asking what you are going to retire to rather than retire from. What we’re now talking about is a vision for this whole other phase of life rather than a short rest period in your last days.
Marc Freedman articulates the new approach to retirement this way:
“Instead of phasing out they are focusing in, attempting to find more from work, not less: more flexibility, to be sure, but equally more meaning and greater impact.”
For some people, redefining retirement means launching an entirely new career; others are using their existing skills and applying them to entirely new causes. Still others are using their entrepreneurial skills to create new socially-minded businesses or engage in strategic philanthropy.
Regardless of the specific form it takes, the best retirement typically involves some ideal balance between faith, work, leisure, family, and community. A successful retirement will fully engage our core strengths and passions. It’s got to be driven by our life’s purpose.
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