Retirement, and the problem with following the herd

One of my biggest pet peeves – perhaps my biggest of all – is people who blindly accept what society dictates they “should” do without ever stopping to ask if it’s truly in their best interest. And one area where people seem especially inclined to behave like sheep is retirement planning.

Recently I became eligible for my company’s 401(k) plan and had to attend a meeting to learn about the options. Some of the other people in the room were saying, “I wonder if I’ll have enough money at age 65 when I retire.”

Hear the societally-programmed belief there? “Age 65 is when I’m SUPPOSED to retire.”

Says who?

Maybe accepting 65 as a retirement age made sense when you could actually depend on Social Security to cover your bills, but those days are gone. Or if you had a company pension that begins paying off at 65. But these days, few companies offer pensions; they offer 401(k)s, 403(b)s, or other defined-contribution plans.

So, when are you supposed to retire? The way I see it, when two conditions are met:

1) When the desire not to work anymore is greater than the desire to keep working. And this rarely happens at 65. Some people love what they do and would like to keep doing it until the day they die, or until the day they find something even better. Some people have no need to keep working once their kids are through college.

And there are people like me who enjoy their work, but believe we were born to play, not to work, and would retire tomorrow except for condition number 2:

2) When you have enough money to maintain whatever lifestyle you want to have in retirement. The 401(k) video we had to watch at work said people typically need 60-70% of their current income to retire comfortably. I don’t believe that at all. I don’t want to cut back when I retire! I think most people want to maintain the same lifestyle in retirement as they did when they were working. Maybe even a better lifestyle, because now you have more time to travel, enjoy life, spoil the grandchildren, whatever!

There are plenty of people who retire, get incredibly bored, and die after only a few years. Why? Condition 1 was not met. Their life would have been much more fulfilling had they continued to work. But they bought into the myth that they were “supposed” to be happy in retirement at 65, and found out it was just a myth.

Then there are people who retire at 65 and wonder why they can’t make ends meet. It’s because condition 2 was not met. They weren’t in good enough financial shape to retire, but because they did what they were “supposed” to they assumed everything would be okay. And now they’re finding out that things don’t work that way.

I’ve also met people who are 45-50 who have jobs they go to every day, and they’re generally pretty miserable, and they complain about how much they hate working, despite the fact that they have enough money to live on for the rest of their lives. So why don’t they retire? Because it isn’t in their reality that they can do that. They too have bought into the myth. There’s an artificial barrier in their minds saying they can’t stop working, even though their investment statements indicate they can.

“But…” you may ask. “401(k)s, IRAs, and other tax-advantaged accounts can’t be drawn on until age 59 1/2. So you CAN’T retire before then.” Yes you can. The only thing is, if you draw on them before 59 1/2, you have to pay taxes and penalties. So the reality is not “I CAN’T retire before 59 1/2,” it’s “Do I have enough money to cover not only my retirement but also taxes and penalties until then?”

People would be so much better off if they asked, “What are the options?” when it comes to making life decisions, rather than asking, “What is everyone else doing?” or saying, “I can’t.” But so few people do. Financial and retirement decisions are just one area where this is the case.