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Are you ready for a “second law” in retirement? Unfortunately, large numbers of Americans heading into their 60s aren’t — at least from a financial perspective.
While the average amount of retirement savings for Americans ages 55 to 64 was $408,000 in 2019, according to the Federal Reserve’s Survey of Consumer Finance, the average savings was just $134,000 for that group.
Between these savings and Social Security benefits, more than half of Americans in that pre-retirement age group are likely to experience a significant reduction in their standard of living in full retirement. Although they may yearn to quit the job and pursue a passion – a “second act” – their financial condition will make this difficult.
At the same time, there are millions of Americans who are approaching retirement age who are more financially secure and can consider taking advantage of the tighter job market in one generation to transform their lives.
“This environment may be the best we’ve ever seen for people in their 50s looking to do their next thing,” said certified financial planner Sheryl Garrett, a former financial advisor and founder of the Garrett Planning Network. “I see a lot of opportunities for the second seasons – maybe the third and fourth as well.”
Garrett does not believe in retirement, arguing that it is not a natural state for people. She prefers to think of the last life as an opportunity to “renew.” This may involve finding work that is gentler on your body but perhaps more importantly, it will fuel interest or passion.
“Preparing for retirement is more than just being financially prepared,” Garrett said. “It has to do with psychological and social readiness.
“We need a second chapter,” she added. “We may need it from a financial perspective, but over time I think the psychological aspect is the most important.”
Garrett has made some changes herself. It no longer advises individual clients but continues to work with advisors in the Garrett Planning Network. She also operates a four-cabin resort in Arkansas, where she lives.
“I outsource maintenance, but I get the benefits of meeting guests and they pay our expenses,” she said. “I’ve also become a gardening fanatic.”
The key to learning your second class, Garrett said, is to start with a realistic self-assessment that answers several important questions:
• What is your passion? The second acts require some passion. If you are not motivated to pursue a new job or activity, it is pointless.
“You may need the money to come from it, but you have to be driven by the passion to keep it satisfactory,” Garrett said.
She said she saw older friends become librarians and financial advisors. Some started their own businesses. Others have taken on new jobs because they miss human interaction in the workplace.
“The stereotype of older adults who go to work at Walmart is often not about money but about socialization,” Garrett said. “They may need the money too, but they are happy to receive it.”
If your passion is geared towards the idea of golfing, gardening, or reading, you may be better off sticking with your current job and working part-time, if possible.
• What is the importance of money? Depending on your financial circumstances, a second measure may still have to provide you with significant income for it to make sense – in fact, you would be “junk”.
Furthermore, the pursuit of passion can be costly and you must be realistic about the financial risks it may involve.
“I had a hospital director client who once wanted to open a graft and treatment store in his mid-fifties,” Garrett said. “His wife thought it was stupid.
“We’ve done some analysis and I’ve advised them that they need a few more years of bigger incomes before they think about it seriously.”
• What are your skills and what are the opportunities in your community? Does your passion require some additional training or education to effectively pursue? If so, do you have the financial resources to afford it? Equally important is ensuring that there is a market for the interests or business you want to pursue.
Garrett suggested, “If you’re in the community you want to be in, find out what challenges people face and whether you can help provide solutions for them.” Whatever it is, there are needs and opportunities.
“Relive your passion and design your next class the way you want it.”