It seems there’s just one great money book after another these days!
It started last fall with the release of The Next Millionaire Next Door
I covered this book in several posts including:
- The Next Millionaire Next Door
- The Characteristics of Successful Investors
- Self-Reflection: A Critical Step Before Really Pursuing Financial Independence
Next was Everyday Millionaires where I offered these thoughts:
- Most Common Myths about Everyday Millionaires
- Five Attributes of Millionaires, Part 1
- Five Attributes of Millionaires, Part 2
Well, today we have another in this line.
It’s a pleasure for me to share an excerpt from Work Optional: Retire Early the Non-Penny-Pinching Way.
It’s written by Tanja Hester from Our Next Life, which makes it an extra fun read for me. For those of you who don’t know her, she’s probably one of the best writers in money blogging.
I got a copy of the book last month, requested running an excerpt, and she and her publisher agreed.
Which makes this a good time to say this excerpt was adapted from Tanja Hester’s book Work Optional, which published February 12 from Hachette Books. Copyright © 2019 by Tanja Hester.
I selected this excerpt because 1) it’s at the beginning of the book (so it sets the scene and lets you know what’s coming) and 2) I love the topic — the definition of “retirement”.
I won’t say too much about the selection since I don’t want to ruin it for you, so for now let’s turn it over to Tanja and I’ll be back at the end to add some thoughts…
What Is Retirement, Anyway?
Retirement is a loaded term, filled with imagery of sitting on a beach with an umbrella drink in your hand, never doing one second of work again.
But here’s the thing: That’s not reality for the vast majority of retirees now, nor has it been at any point in history.
Retirement itself has only existed since the late 1800s, and even then, very few people actually retired. For most of human history, people have worked until they died, though that work looked almost nothing like the always-reachable, can’t-get-everything-done work of today.
Even in the 21st century, with more economic prosperity than ever before and more people retiring than ever before, many people don’t quit working when they retire.
According to the Bureau of Labor Statistics, labor force participation for adults aged 65 to 74 is increasing and will hit 32% by 2022, and 11% for those 75 and older. Some of those workers are people who never retired, but many more are folks working “second acts,” jobs that are often part-time and that may feel fun or purposeful. Many other retirees are redefining the term by focusing on volunteering and service, giving their retirements meaning but spending their time in ways that look an awful lot like work.
The formal concept of retirement originated in late 19th-century Prussia (now Germany) under Otto von Bismarck, and it was not instituted altruistically to give workers some well-deserved leisure time. Rather, it was put in place to force older, less-efficient workers out to make way for younger, more able-bodied workers. The retirement age was set by the economists at 70, though very few ever reached that age and benefitted from the program.
Some pensions were created for military servicemen in the US and public employees like firefighters and teachers in bigger cities between the mid-19th century and early 20th century, and American Express created the first private pension in 1875, but these pensions were not meant to eliminate the need for work altogether.
When the Social Security Act of 1935 was passed in the US, the retirement age was set at age 65, but at the time, the life expectancy for an American male at birth was only 58. Most of those who reached adulthood could expect to live to age 65, but many workers would never benefit from this new program. It was instituted just after the Great Depression as an incentive for older workers to leave the workforce and make way for younger workers at a time when jobs were scarce.
Contrary to popular belief, there’s also not a “correct time” to retire. Though we think of age 65 as the right retirement age, it was an arbitrary age chosen by economists and actuaries when Social Security was created that happened to make things balance out fiscally, not because there’s anything special about turning 65.
And in reality, if we look at long-term trends, people are retiring far younger than we used to. In 1900, more than 60% of men 65 or older were still working, a number that dropped to 40% by 1950. And by the year 2002, it was down to 17% for men, and 10% for women over 65.
The average retirement age currently stands at 62, though nearly three-quarters of current workers say they plan to work past age 65, and two-thirds say they’ll semiretire and continue to work part-time. So there’s no magic to any of the ages we tie to retirement—59½, 62, 65, 67, or 70½—but only functional milestones.
There are other ways to fund your retirement that don’t require age-linked investments, and if you build them into your financial plan, there’s no reason why you have to wait for those milestone ages to leave your career.
Bottom line: Retirement is still a very recent invention. It was never intended to be something everyone could do, it certainly wasn’t instituted for the good of workers (us!), and for many people it doesn’t mean the end of work. Retirement is no reason to shape our entire lives in a conventional way on a made-up timeline that says we must work full-time until age 65.
The Freedom to Define Retirement for Yourself
Sociologist Robert S. Weiss defines retirement three different ways:
(1) economically, by the fact that you don’t need to work for money;
(2) psychologically, by your own determination that you feel retired; and
(3) sociologically, according to whether society sees you as retired.
Unfortunately, we give the last one far too much weight and think it’s up to others to decide whether what we’re doing qualifies as retirement. If you put yourself in a position to walk away from work—whether that’s forever, temporarily, or partially—you can call yourself retired in some form if you darn well feel like it. And after you detach yourself from that arbitrary age 65 and its limiting notions of what retirement means—for example, the false notion that you’re never allowed to earn another cent if you call yourself retired—you open yourself up to an entirely different way of seeing life.
Instead of using our money to buy us more things and treat ourselves to cope with the stress of working—as the standard script tells us we’re supposed to—we can use that money to buy our way out of the standard work system altogether. You can hack your money and your mindset to achieve a work-optional life more quickly than most people imagine possible, reducing the role of mandatory work and increasing the time you can spend on what fulfills you most, from travel to hobbies to service to time with friends and family.
Best of all, it’s possible without pinching every penny or living so frugally that you make yourself miserable. Because this is ultimately about living your best life, and that means enjoying yourself both while you’re saving and after you reach your goal.
While you can shape the life you’re aiming for however you wish to, here are the general categories of work-optional living:
- Full early retirement—You never need to work for money again. By saving enough that your investments can grow to cover your expenses forever, work becomes entirely optional for the rest of your life. There’s no rule that says you’re never allowed to work again if you feel inspired to do so, but with this approach, you’ll never have to. You are financially independent.
- Semiretirement—You only need to work part-time, seasonally, or in a lower-stress position. By saving enough for a traditional retirement later so that your only concern now is covering your basic living expenses, you make work something that you can do entirely on your own terms. Semiretirement can involve continuing the work you already do but on a part-time basis, or it could look a lot more like low-risk entrepreneurship, in which you start your own business but without the same pressure most entrepreneurs feel to make it hugely successful right out of the gate. You are financially secure.
- Career intermission(s) —You can take a break from work for an extended period before having to go back. By saving enough to cover you for the length of your intermission, along with a buffer, you give yourself the opportunity to take a breather from work without jeopardizing your financial well-being in your later years. You can also think of this model as a self-funded sabbatical, and you might take a few of these intermissions over the course of your working years. You are financially flexible.
Told you it was some good stuff!
Now some thoughts from me:
- It’s interesting when you look back on the history of retirement. So many people assume it means one thing (retiring at 65 to play golf) when history shows a completely different story. So how did we get here? It’s fascinating to consider.
- I LOVE the three ways to define retirement. She’s right, we most often focus on option #3, which is why I have a tough time explaining my retirement to people. But I’m certainly retired based on options #1 and #2.
- I also love the general categories of work-optional living. I’m in full early retirement, for sure, but I can see how others I know (mostly bloggers) are in semiretirement or career intermission.
Overall, this book does an awesome and thoughtful job of looking at retirement. It does this in a way that helps people live their best lives by considering all their options. My guess is that it will make a meaningful difference into future generations.
Now it’s your tun! What do you think of the above?
Anyone read the full book? If so, let me know what you thought.