It Turns Out Retirement Planning Is Complicated


Teresa Ghildarducci sat for an interview with Barron's the other day. Ghildarducci is a well known retirement maven and while you may not agree with all of the conclusions she draws (I do not) she does have interesting things to say. The general idea with this interview was that plans to retire early as well as plans to retire late or never retire are both unrealistic. There are too many variables in both. It's not that people shouldn't plan to do either but that they shouldn't go all in, they should have some sort of backup.

Not surprisingly, Ghildarducci is not a fan of FIRE, financial independence/retire early, saying that people who want to retire in their 30's should see a therapist. She thinks that retiring in your 40's or 50's is way too young. She also lays out some financial benchmarks for various ages; by 40 "you should have a little more than your annual income," at 50 you should have 3X your salary and in your mid-60's you should have eight times your salary. Those numbers are not as daunting as similar numbers cited elsewhere.

The interview goes into some of the difficulty that people in their 50's or older can have with keeping their jobs or finding new jobs that allow them to replace their income, here's more on that issue. This dynamic is either newer (like the last couple of decades) or getting more attention but either way it is a threat to older workers.

It has long been my nature to try to look forward at what might threaten my plans and figure out how I would mitigate the consequences of those threats bearing out. I've told the story many times of my getting laid off from Charles Schwab in September 2001. I could see the writing on the wall about a year and half ahead of time so I stopped using vacation days (those got paid out upon being laid off), stopped 401k contributions and let that money accumulate in a taxable account and reduced our spending. Between all of that and my severance package we had enough to last an awfully long time.

What threatens your livelihood? Are there any reasonable threats to your nest egg (like needing to spend a lot on your home or being financially responsible for a family member)? How likely is it you will have to spend a lot of money treating some sort of chronic malady? No matter your age, if you have some sort of financial plan, you should also know what threatens the outcome you are hoping for, take steps to try to mitigate those threats and then periodically reassess. My own version of being displaced at work from back then leaves me believing that it is unnecessary to be totally caught off guard and ill-prepared by a job loss.

One thing missing from the Ghildarducci interview was the unlimited opportunity created by the internet to make a living/find a new career. I write about this a lot but with the caveat that you need a long runway to create some sort of online livelihood. If you're middle aged and set in your ways (these terms a synonymous for most of us) then it might be sub optimal to start as the new guy at an office, needing learn the office dynamic and figure out how you would fit in, I would want no part of that and have been pursuing interests that would hopefully allow me to avoid that outcome if ever faced with that situation.

One other possibility that can help someone who has been displaced at work in their 50's is that this is the point where having lived below your means for your adult life can pay off dramatically. If you're 55, have lived below your means and saved a lot of money then you might be at a point where you don't need to save anymore or can get away with saving a lot less. Anyone lucky enough to be in this position doesn't need to be so focused on replacing their income in the face of an unexpected job loss. If you've been living a $50,000 lifestyle on a $100,000 income, you then could consider a $50,000-$60,000 job to replace one just lost. If you can open up to that, then you have far more possibilities to choose from, or put differently from previous posts, you have increased your optionality. That becomes a huge win, bordering on anti-fragility.