You should break these six retirement rules. Here's why.
Some rules are meant to be broken. Why it is time for these six retirement rules to go.
Are there right and wrong ways to retire? While that's a relative question, there are retirement rules that are in your best interest to follow — and those you might want to break. Consider these six retirement rules you might be better off ignoring.
1. Depending on a Pension or Social Security
Counting on a pension or Social Security to help you ride out your retirement years? That's probably not the best strategy to have, considering that very few companies still offer pensions (though you'd know if yours does) and Social Security is still in crisis (so much so that it might be bankrupt and not even exist by the time you retire). That's not to mention that inflation is likely to outpace your per-month payouts in the off chance that you do receive these income sources.
You may need to think of other ways to fund your retirement — and it's in your best interest to start planning for it now (or better yet, yesterday).
Brent Cumberford, founder of the personal-finance blog VOSA, offers a few suggestions.
"Start your own retirement accounts; invest in business to generate a second — and third and fourth — stream of income; and hustle to make some extra money on the side to kick start your retirement savings," he says.
Putting in the extra time and effort early on to pad your retirement account for later means you might actually be able to enjoy those golden years.
2. Withdrawing From Your Retirement Fund or Social Security Right Away
Even if you have plenty of money in your retirement fund (or think you do, as is the likelier scenario), that doesn't mean you should start withdrawing from it the day after your retirement party. Proceed with caution in this case and remember that you still have a long life ahead of you.
"One retirement rule that no longer makes sense is the one that suggests a 4% annual withdrawal rate on your retirement portfolio," observes personal finance expert David Bakke of MoneyCrashers. "Americans are living longer these days, and if you go by that rule you might outlive your money. Your best bet is to withdraw as little as possible in the beginning and adjust your strategy as you see how things are progressing as you get acclimated to living off of your retirement money."
Bakke says that waiting to withdrawal money from Social Security has its benefits too, as you may receive a larger annual Social Security benefit when you wait.
3. Going Full Retirement Because You Think You Have To
Just because the government says you can retire at age 65 doesn't mean that you have to resign the rest of your life to whiling away the hours. Instead — if you're still willing and able — consider semi-retirement. It's the best of both worlds really: You can still contribute to society as a part-time member of the workforce, and you can enjoy more leisure time as a result of your shorter work schedule.
More and more older Americans are opting for semi-retirement, in fact. Some are even opting for a new career path altogether. Continuing to work at least part-time past retirement age will not only help you feel like you still have something to offer the world, but it also helps you to continue to actively build your retirement fund — or at least maintain it at its current level.
Elle Kaplan, CEO and founder of an asset management firm, touches a bit more on the financial benefits of semi-retirement.
"How would a semi-retirement change your financial reality?" she asks. "Take two months and track the money coming in and going out. Keep track of what you spend and all your bills. This will give you a clear sense of where you stand. Next, figure out what your Social Security payment is going to be each month in retirement. The Social Security Administration will provide this information and tell you how much you'll get based on what age you retire. Working even a few more years can have a huge impact."
4. Waiting Until You're 65 to Retire
Retirement age is typically specified at 65 years old in the United States. But to heck with that! Wouldn't you like to retire earlier?
Of course, you'll probably need to strike it rich — or live very meagerly — in order to hang up your work boots in advance of the government-issued go-ahead. But maybe not. Have you ever thought about short-term mini-retirements? Ever even heard of the concept?
"Obviously it would be awesome if everyone could earn a fortune, retire young, and travel the world, but it's not going to happen for everyone," Cumberford says. "What can happen for almost everyone is short-term mini-retirements, a concept spoken about in greater detail by Tim Ferriss in The 4-Hour Workweek. Saving money specifically for a short sabbatical, or even just an extended vacation while keeping your current employment can typically be negotiated. Think five weeks in Southeast Asia, or a summer backpacking across Europe. With the virtually endless amount of airline and hotel points that can be earned through travel hacking, even far away places can be very affordable."
As someone who has hosted lots of Australian guests who are allotted at least six weeks vacation every year, I'm not only envious, but also in favor of the idea of short-term mini-retirements. While they're working to live, we Americans are living to work (well into our golden years), and that's an outlook that could use some rethinking. Shouldn't we enjoy a high-quality lifestyle throughout our lifetime instead of when we're darn near dead?
5. Clinging to the Family Home
For many of us, our homes hold a lot of memories that make it hard to part with the house — even after the kids are grown and gone. But as you enter retirement, it's not a great idea to hang on to a large space with high utilities or even a mortgage that will become more and more difficult to manage as you age. The alternative is to downsize, of course, such as a smaller house or apartment, or even alternative-living situations that may suit you even more — like an RV, for instance.
Janet Groene, author of Living Aboard Your RV, 4th Edition, lived in an RV for 10 years before settling in Florida, and she's a staunch advocate for the nomad lifestyle.
"By selling out and moving into an RV, retirees fulfill their dreams of travel and at the same time live comfortably in a fully equipped home on wheels while scouting for the right place to settle down in retirement," she encourages.
6. Heading South for the Winter
Snowbirding — the practice of northerners spending the winter in warmer climates and summers at home — is common among retirees. But isn't that just a little too passé for today's generation of leisure seekers? Mark Koep, founder of CampgroundViews.com, thinks so. Like Groene, he wants retirees to think about their living options and arrangements more in depth so they don't automatically relegate themselves to a lifestyle that isn't necessarily fulfilling.
"The old idea of snowbirding ignores the freedom and adventure that modern retirees seek," he says. "Instead retirees should consider boondocking — camping in Bureau of Land Management and Forest Service lands for free — and discount membership clubs to travel and explore more destinations."
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