Most pre-retirees haven’t saved enough money to retire full time at age 65 and enjoy their pre-retirement level of spendable income, according to a recent report from the Stanford Center on Longevity. Instead, they’ll either need to work longer, reduce their spending, or do some combination of the two.

This conclusion assumes that to be comfortable, you’ll need to meet a common retirement planning goal: that you’ll need a gross retirement income equal to 70% to 80% of your pre-retirement pay. Why not 100%? When you’re retired, you’ll most likely need less gross income because you won’t pay as much toward income and FICA taxes, you won’t need to save for retirement anymore, and you won’t have to pay for work-related expenses, such as commuting.

If you haven’t saved enough to meet the 70% to 80% replacement goal, there’s no need to panic or get depressed about your future. Instead, try changing your retirement objectives. It’s pointless to strive for an unrealistic goal that requires more money than you have. Rather than having pie-in-the-sky plans, a more helpful strategy might be to decide that you simply want to live a fulfilled and happy life during your retirement years. Then you can decide:

  • How much money you really need to be fulfilled, and
  • Whether you can still be happy if you need to work during some of your retirement years

Let’s take a deeper look at these two decisions.

Can you spend less and still be happy?

The common 70% to 80% retirement goal assumes that in retirement, you’re basically continuing the life you had while you were working. This means you’ll need the same amount of money to spend that you had during your working years. But if you can’t afford that life, it might be time to rethink what is “just enough” money to meet your basic living expenses and be happy.

A good place to start is to reexamine your most costly basic living expenses, which typically include housing and transportation. To save money, you might consider downsizing your house. In the process, you might better meet your needs in retirement, such as by moving to a smaller house that requires less upkeep or by living closer to friends and family.  Another savings area to consider is transportation. Maybe you could drive a less expensive car, walk or bike more, or use public transportation to get where you need to go.

You’ll also want to look at your “wants” (vs your needs) to see if they really support your goal to be happy and fulfilled in retirement. There could very well be less expensive ways to live a life that makes you happy.

Can you work during your retirement years and still be happy?

For many people, an underlying, often unspoken assumption is that there are much better things you could do with your time than to work and that you should retire as soon as you can. But this assumption overlooks the fact that working provides us with many nonfinancial benefits, including friends, social contacts, and a reason to get up in the morning. And don’t forget the obvious financial benefits: more money to spend and possibly valuable medical insurance.

Of course, there could be serious disadvantages to your current working situation. Your work might be stressful or unhealthy. You might be tired of working so hard, or you’re bored and want to try something new. However, retiring completely from the work force might not be the best way to address these challenges, particularly if you haven’t saved enough money to stop working. Instead, it might be more realistic to find different work that addresses these challenges.

Most work situations have their advantages and disadvantages. To sort out these considerations for yourself, write down all the benefits you realize by working, both financial and nonfinancial.  Then write down the disadvantages. Then think about how you can maintain the advantages and reduce the disadvantages, either by shifting your current work situation or by looking for new work.

By thinking smarter, you can overcome any discouragement you might have about your financial situation for retirement. Refocusing your retirement goals on your life and your happiness, rather than on your money, can be a powerful strategy that can actually make your money work better for you. You can do it!

By Steve Vernon, Contributor

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Robert A Anderson III, CLTC®, LUTCF®, ChFC®
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