Avoiding a Working Retirement

Written by Ismail Abdur-Rahman, CEO

Have you ever noticed how many elderly people are still holding down jobs? I don't mean consulting jobs for which their expertise is paid a premium. I mean jobs that pay a pittance hovering around minimum wage. Look how many greeters at Walmart, for example, are old enough to be your grandmother - or great grandmother. Freelancing in a field that you're passionate about is one thing, but dead-end jobs that you work until you die is unconscionable. I certainly wouldn't want that for my grandparents, and I especially don't want that for myself.

It's unfortunate that there are so many people north of 65 who are forced to work simply to pay their bills or buy groceries. According to a 2016 report, the number of Californians living beyond retirement age is expected to swell to about 12 million, with only half of them equipped with the financial resources to successfully navigate retirement without having to work or live in poverty. How, in the name of advanced society, is this happening? I'll eschew discussing the most obvious causes here, and, instead, I will give just a few solutions that can help you avoid being a statistic in the same demographic.

Tip #1: Budget
Too often, young people fall victim to a 'buy now, pay later' mindset that offers false promises of an exciting lifestyle of convenience and style. The skyrocketing numbers of college students accumulating credit card debt suggest that, just like when I was in college, credit is far too easy to acquire at that age, especially for people too young and inexperienced to be able to manage it properly.

I typically tell my clients to set a budget that forces them to live on about 80% of their real income. Of course, when I do that, I get dirty looks and the expected under-the-breath comments because people who come to me for financial planning help are usually so far in debt that they can't comprehend actually living on less than they have. However, the reason that these clients are in debt in the first place is due to, in 90-95% of the cases, living beyond their means.

Setting a target budget of 80% of real income (by this, I mean after taxes, SSI, student loan payments, and any other automatic deductions that you're committed to fulfilling) is certainly difficult, and I'm not insensitive to that reality. However, if you take a long-term view of your retirement goals, it's better to sacrifice a little now than to suffer a lot later. This will necessarily mean cutting out extras and going very basic for a period, but there is a method to the madness. The remaining 20% should first be used to accelerate debt payments, as it is compounded debt that wreaks the most havoc on long-term living plans. Most of my clients find that after they successfully navigate the first 3 or 4 months on a budget, things get easier to manage, and the discipline they've developed by then pays off with exponential long term benefit in other areas.

Tip #2: Invest
Planning to live your life solely on the salary you are paid is a catastrophe waiting to happen, for more than one reason. First, this approach invites overspending, and overspending quickly leads to debt. Additionally, there is no sense of risk management in this approach. What would happen were you to lose your job unexpectedly? I'm sure you've heard the frequently-quoted statistic that mentions that the average millionaire has 7 streams of income. One of the best streams of income for a working person to acquire is investment income.

I suppose this is the point where I should issue a disclaimer and note that all investments are not created equal. Every investment opportunity isn't good for every potential investor, so, unless you have prior investment knowledge and experience, it would be best to consult an expert, or at least someone you trust. having said that, it's usually good advice to take baby steps at first -  start with a low risk investment that will at least offer the potential of growth in the long term. Resist the temptation to jump into something that promises fast turnarounds or exponential returns, as these are not recommended for people who are extremely risk-averse and have little ability to bear major financial losses. Eventually, even investments that are marginally profitable will generate additional income that you can use to reinvest in other areas or simply save. 

Tip #3: Entrepreneurship
Go ahead, admit it....you knew this one was coming, right? Yeah, I know, but hear me out. The reality is that with the rise of the freelance economy, there will be a lot more opportunities available to leverage your knowledge and experience in ways that are both comfortable and profitable for you. I'm not saying you have to quit your day job, but if you were to at least consider starting something on the side, you could safely test the waters and see if freelancing or working a side hustle is for you. Of course, everything isn't for everybody, but in the event that you try it and the thought of having career (and financial) freedom appeals to you, there are a few things to keep in mind. 

Because so many people are expected to get into freelancing, establishing a niche is extremely important. Being a generalist in a competitive marketplace is not generally conducive to long-term sustainable success. The other thing I would suggest in the event that you are considering freelancing is managing your freelance career as a business in which you are the CEO. In the event that you have a product or service that can be developed into a full-scale, full-time business, engage a business coach or mentor to help you work out a business model that can make your offering profitable in the market.

Remember, failing to plan is planning to fail. Don't wait until you are near retirement age to start planning for it. I've got nothing against 18 year olds working the cash register at Walmart, but it's not a good look for octogenarians who should be vacationing around the world and Snapchatting with their grandkids.