Cutting Back on Work with a Retirement Downramp
Making a clean break can be an effective strategy in some aspects of life. A fresh start through new routines, a healthier diet, more exercise – these are all areas where making an abrupt change might work well for you. Shifting into retirement isn’t always so easy.
It can be emotionally difficult for many career-focused individuals to go from working 40, 50, or even 60 hours per week to working zero hours per week. I find that many of my clients receive a lot of fulfillment from their jobs, then tend to struggle with the so-called retirement cliff.
Dipping Your Toes into the Retirement Waters
While some folks do just fine saying goodbye to the office for good, others need a downramp plan to ease into retirement. Part of a solid long-term financial strategy must include many qualitative aspects to ensure that we are maximizing happiness for you and your family. Sure, the numbers on a spreadsheet matter, but your priorities and goals often come first.
More Work Flexibility Today
What’s ideal about today’s work construct is that there’s more flexibility. Companies now offer remote options for many tech-industry and knowledge-based workers, and your employer might be more flexible than you realize about making you happy to keep you employed. What could appeal to you is coasting into retirement through reduced work hours. This is actually a common conversation we have with clients – the possibility of slowly stepping back from job duties.
An effective downramp might look like this: cutting back to 32 hours at first, then 15 hours per week, then 5 or 10, before finally hanging ‘em up for good. Another option is seeking part-time work or even consulting to help fill a potential void.
Building Your Ideal Retirement Downramp
Of course, planning must be done before easing off the career gas pedal. Some of the same tactics used for defining and achieving other financial goals throughout life apply to forming a retirement downramp strategy. Here are some steps to get the process going:
1. Run the numbers.
As with any significant change to your cash inflows and outflows, running a what-if scenario analysis that can assess all possible financial outcomes is crucial to determining if stepping away from work is feasible. Assuming your portfolio is enough to fund a full retirement, then you have the freedom to work how you please. If you are still a bit short, then we can calculate how much more you will need to save.
2. Save and invest.
Once we have figured out how much more you might need, then simply continuing to contribute to tax-advantaged accounts as well as an after-tax brokerage account are effective ways to get you on the road toward your retirement downramp. It’s also a busy time when it comes to financial planning since Social Security election strategies and Medicare options are important for individuals and couples at this age.
3. Review work options.
We’ve talked about looking at toning down work hours, considering part-time employment, and what remote flexibility there might be with your company, but do not discount the upside to starting a whole new career.
Consider this: Retirement is a relatively new concept. Not so long ago, people worked until age 65 and then (to put it bluntly) kicked the bucket since life expectancy was less than 70 as recently as the 1950s. A generation before that, there wasn’t even a retirement system in place. So, we are just not wired psychologically to go from work to no work, and it is a struggle for a lot of people.
Reviewing your work options can be a broader thought exercise. Even if you are years or even decades away from traditional retirement age, consider an early retirement model and what a period of, say, 40 years without a paycheck might look like. There is also a semi-retirement lifestyle method that combines leisure with part-time/flexible work from age 55 to 80 before your so-called “no-go” years begin. Another approach is to splice in several mini-retirements throughout your career. It’s a lot to weigh, but they can all be viable choices depending on your personality and what is important to you.
4. Consider a sabbatical.
A key piece of your retirement downramp might include an extended time away from work to test drive retirement. While only a small percentage of firms offer paid sabbaticals today, we see this benefit more and more. Paid leave of several weeks to 6 months gives employees the chance to travel the world while keeping a paycheck and benefits. But it also offers up the opportunity to get a feel for your future retirement. If you find yourself restless after a few days with no Outlook calendar guard-railing your day, then we could have a problem brewing. Assuming you are in a good financial spot, you can even request an unpaid sabbatical from your boss.
5. What does your retirement budget look like?
Once you have decided on a downramp plan, we must be prudent to mock up a retirement budget accounting for each stage in your step-down from the 9-5 grind. It’s not so much the dollars and cents that matter; simply having the confidence that you’re all set financially can relieve any possible money worries. You don’t have to set a budget like a college student by any means – just a broad money-in, money-out understanding will probably suffice.
6. Health insurance.
This is sometimes the roadblock on the downramp. If your spouse continues to work, then taking spousal health insurance is an easy choice. Commonly, though, a couple wants to retire at about the same time. In such cases, reviewing health insurance coverage options is key. With the typical Medicare age not until 65, bridging a coverage gap is imperative. Purchasing private health insurance is an obvious choice, but access to a health plan through part-time work elsewhere is something else to consider.
7. Talk about it.
Do not go at these big decisions alone. Seeking the help of an advisor and even a financial therapist can instill peace of mind. Also, while there are risks to early retirement and boxes you must check, remind yourself that retirement flexibility is a wonderful thing. You have worked hard to put yourself in a good financial position; the retirement downramp is not a problem, but a sign of success. Conversations with a pro can help you spot strategies and risks you might miss on your own. Those talks can also remind you that you have absolutely done well and deserve to feel a sense of accomplishment.
Here’s something you can do today without even picking up the phone or opening a Zoom screen:
Think about your perfect job with the perfect hours. What does that look like? Get detailed with it. What time would you wake up in the morning? Where would you work? Do you want to be around a team of people? What duties do you want to continue doing, and which ones would you like to stop? What unique value do you bring to a company by presenting this flexible work arrangement? This thought exercise helps people begin their transition to retirement.