Written by Do you know which of the three types of retirement is best for you? Over time, our beliefs of how a dream retirement should look have changed. Now, there are three generally accepted ways to describe a retirement.
Give your life for your life
Let’s start with the traditional retirement. In this retirement, you work from your early 20’s to your mid 60’s. Once you reach 65, you retire and ride off into the sunset. In this situation, your retirement is considered a leisurely experience filled with travel, fun, and adventures.
Those who have a traditional retirement usually work ~14 jobs over their lifetime. Over their career they will move up the corporate ladder, secure a few raises and go out on top. When you retire, you are going to focus a little more on yourself. You have decades to the workforce and you are ready to focus on something else. To secure a traditional retirement, you must save money over your career. Whether you save 5% or 25% of your salary, you need to be consistent. Keep in mind traditional retirement is can last for 20 to 40 years. Therefore, you’ll need to commit to investing money for a significant amount of time to ensure you never have to work again.
Invest more, retire earlier
When it comes to the three types of retirement, the second type of the one many people enjoy. In this type of retirement, you want to retire 10-20 years earlier than your traditional retirement. As a result, you either need to start investing earlier or investing more. If you decide to invest more, you may be investing 30%-50% of your income each year. This approach is very difficult for many. It usually requires a six-figure salary with a good amount of disposable income. Even so, this is not a get-rich-quick option. You are still investing your money for years, if not decades. Don’t go out looking for the next Amazon, Facebook or Google. Put a thoughtful plan together that is considers the risk of investing.
No shortcuts
Don’t invest too aggressively because you are planning on retiring early. Imagine being over-exposed in the market during COVID or the Great Recession. Your loses could push your retirement back 10 years. While it is true the market typically moves up over time, it doesn’t mean you won’t be dealing with volatility. It takes time to make your money back, so you need to account for that time in your plan. This usually means you want to shift your focus from growth to capital preservation as you near retirement.
Most people who retire early make sure they have their debt under control. They start by paying off their large debt. You are in good shape if your kids are grown and you have paid off your house and your cars. Imagine reducing your six-figure lifestyle by half. Now you can retire much earlier and live on much less, without sacrificing your lifestyle.
How does semi-retired sound?
The third of three types of retirement is semi-retired. It is a blend of the first two types of retirement in many ways. You may have a stressful job that pays you well. When I worked at an investment bank, the traders fit this description. They would be paid very well, but the work was so demanding. As a result, they burned out and retired in their 40’s.
They would semi-retire and take off the next five years or so. This break can allow the trader to be more active with their family and enjoy the little things. Think of it as a time to enjoy the fruits of your labor. However, the plan is to eventually go back to work. When they go back, they are not going to be a trader. They are going to find a less stressful role. The pay won’t be as great, but that’s okay. They just want to replenish their funds and get back into the workforce. The plan is to rebuild their retirement fund doing something they are passionate about. If they don’t find work aligned with their passion, they will focus on work that gives them more personal time. Time they can spend with their family, traveling, or volunteering.
Same plan for entrepreneurs
You start a business, build it up and sell it for millions of dollars. What do you do now? For many entrepreneurs, you take a small break (semi-retire) and then you start another business. If you are not interesting in the grind of starting a business, you may look for opportunities to invest in other businesses. For those who receive more money than they can spend in a lifetime, they focus on philanthropy. Where their work is not about being paid, but about their purpose and desire to make the world a better place.
Final thoughts
Which of the three types of retirement makes the most sense to you? Is the traditional approach the pace for you or do you want to retire earlier? Do you love what you are doing or do you dream of something different? For most, the dream of retirement is something that feels too far off to think about. But the only way for you retire is to have a plan and to stick to the plan. Take the time determine which of the three types of retirement works for you. Don’t live life reacting to the challenges. Instead, life a prosperous life by design.
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