August 2nd 2022
What are the three (3) types of retirement? Did you know there were ‘types’ of retirement? I didn’t really either… It makes sense though.
Before we dive into that answer – let me set the stage.
History of Retirement Types
Retirement Plan Financial Advice
The proverbial “work” that leads up to retirement has been changing dramatically over the past few years. I believe retirement plans are changing too.
Traditionally, folks would go to school, get a job, work until they couldn’t anymore and retire. The intent or goal was to then enjoy a life of planned leisure, travel and peace. That sounds like traditional retirement, right?
Now though – people have changed. Technology has changed. The traditional way of retirement certainly won’t be replaced any time soon but maybe it will for you. Read more below about the three different types of retirement.
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What are the three (3) types of retirement?
What is traditional retirement?
The traditional type of retirement is the one we’re all familiar with – save a lot, invest for growth, and retire as soon as you’re financially stable. If you do this correctly (and have some luck), your portfolio will grow and you may be able to retire “early”. If not, you will have the chance to retire in your 60s (most common) when taking Social Security makes sense. The time in retirement is filled with leisure, volunteer work (our favorite) and a general lack of financial concern.
What is semi-retirement?
Either you’re retired or you’re not! Right?
Not necessarily. “Semi-Retirement” is a form of employment where work is reduced, sometimes significantly, but not eliminated. Examples include starting a business, pursing a new career or consulting/working part time in an industry you love.
“Semi-Retirement” in these examples simply means leaving your current job but not leaving the work force. Ongoing and paid work are vital components to using this retirement strategy. This work tends to be fulfilling both personally and professionally.
The third type of retirement is an intentional (or maybe not) series of temporary retirement(s). This adventure has sabbaticals or breaks with some regularity or intention. The individual takes a break (think of summer break – maybe even longer) and returns to the working world with a new job or career track.
In this retirement strategy, retirement does not happen based on your age. You are spreading out your retirement or planned leisure throughout your life. This can be accomplished by a few long breaks from the workforce or several shorter breaks. Unfortunately, this type of retirement will have a shortened final retirement period due to the redistribution.
What type of retirement is best?
Retirement Plan Financial Advice
Best? That’s tough. Personally, I’ll take the magical world where I’m financially stable taking sabbaticals my whole life. I started my career there as a teacher. Teachers need to be paid more and have longer sabbaticals. The only reason summer break isn’t longer is because teachers won’t come back. Planning retirement, regardless of type, is a challenge. The further you venture from traditional retirement, the greater the odds for increased planning needs.
The bottom line is this. Please recognize that alternative types of retirement have the potential to substantially change traditional retirement advice.
With planned “semi-retirement,” retirement savings will not be invested nearly as long term (which should change portfolio composition), and will never accumulate as high (since they won’t use the power of compounding as long). Also, savings and disability insurance become important, as do other key human-capital-related elements of financial advice.
Temporary retirement requires a full time life guide. If you are enjoying this adventure – please reach out and share more.
It may be time to consider whether your retirement plan itself needs to shift. This could actually be a substantial transition – and substantial challenge – to today’s financial advisors, as our traditional business models are increasingly focused on assets-under-management and commissions. Those biases do not blend well with alternative retirement styles. They are clear conflicts of interest.
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