Category Archives: Financial Planning

Planning on working until age 70?

Should you plan on working until age 70?  This suggestion has been surfacing in the mainstream financial media.  It is perfectly fine to work until age 70 or beyond.  It should not, however, be the age that your retirement planning is based upon.

Some people like to work.  It gives them purpose.  Work adds structure to the day.  For many people, it is their identity.  Their job is who they are.

Even if you truly enjoy your job, it is practical to have exit strategy in place.  Life happens, and changes occur on many different levels.  It is prudent to have a plan that enables you to exit the workforce sooner rather than later.

There are many reasons why a person should not set their target retirement age to 70.  Planning on working to such an advanced age is difficult because there are too many variables.  Below are some of the concerns that I have with planning on working until such an advanced age:

Financial Planning

If you set your target retirement date for your 70th birthday, it will have a negative impact on how you manage your finances.  It might even prevent you from creating a financial plan.  Savings will not be a priority.  Without an ambitious goal of retiring at a young age, the temptation to spend most of your money will win out every time.   The motivation to save a large percentage of your earnings for retirement will not be a priority while you are working.  It can easily lead to the mindset of thinking that retirement will never occur, you only live once, enjoy it while you are young, and other poor money management theories.

This mindset can easily lead to a financial disaster.  It would also be much easier to take on debt.  Spending leads to more spending.  If you must work forever, you might as well have a nice car, house, and other stuff to show for it.  You will be stressed from all that work, so two or three expensive vacations would provide just enough rest and relaxation to keep you motivated.

Health

Unless there is a major medical discovery, our time on this planet is finite.  Nothing lasts forever and that includes our ability to work.  As time goes by, we breakdown.  Everybody is different, but it happens to the best of us.  If you have a physical job like a construction worker, your ability to perform your job is shorter than if you have an office job.

Even though Office work is not physically demanding, it is not healthy.  Some say that sitting in front of a computer all day is as bad for your health as smoking.  In other words, sitting also breaks down the body from lack of exercise.  Along with our bodies, our minds are not able to manage stress and deadlines the way it did when we were young.  Our egos might not like to accept these facts, but it is just part of being human.

Family

As life goes on, our family obligations change.  Parents age and require more of our attention.  They might even require us to become their primary caregiver.

Children require attention past the age of 18.  Grandchildren are born and need to be cared for.  Daycare is expensive.  Your children might ask you to watch their children, so they can go to work and earn a living.  There are many family situations that could require a person to have to stop working much sooner that age 70.

Job Loss

What will you do if you get laid off in you 50’s, but your financial situation requires you to work until a much later age?  Recessions occur about every 10 years as part of the business-cycle.  Some companies go out of business.  Some companies survive by cutting labor expenses to remain profitable.

Unless you have a tenured position, in many cases, the first employees to get laid-off are middle managers or older employees.  Loyalty is a thing of the past.  Just because you were loyal to an employer, it does not mean that they will be loyal to you.  Just because you want to retain your position, it does not mean that they will retain you.

Age Discrimination

Age discrimination is a real issue.  Under Title VII of the Civil Rights Act of 1964, an employer cannot discriminate based on age.  The protected age under Title VII is 40 and older.

Even though it is illegal to discriminate based on age, unfortunately it occurs.  I have had to coach hiring managers and executives many times about this law and practice.  They do not set out discriminate.  They just tend to see younger prospects as being more budget friendly and motivated than mature workers.

Just because you want to keep working, there is no guarantee that the type of work that you performed during the prime of your career will be available.  You might think that you can still perform at a high level.  The hard part is convincing an employer that you still can do it.

It is Not Fun Anymore

Even though you enjoy your job today, it might not always be that way.  Your assignment might change.  That great boss who supports your development takes on a new assignment and your new boss is a jerk.  The co-worker who you are friendly with gets a new position.  The demands change.  The company is bought by a competitor.  There are countless things that can occur that can turn a good job into a terrible job.

What Age Should People Plan on Retiring

It is prudent to plan on being able to retire much earlier than age 70.  I would suggest setting a goal of having the option to retire by age 55 or younger.  That does not mean that you must retire at that age.  It simply means that you have the means to step away from work if you must.  By being financially independent, you simply have more flexibility for whatever life has in store for you.

By setting a younger retirement age, you will manage your finances more wisely.  It forces you to start saving a large percentage of your earnings as soon as you enter the workforce.  It will force you to spend less and avoid wasting money on stuff that you do not need.  It will also help you to avoid consumer debt like credit cards or auto loans.  It will force you to live and spend smarter.

If work is your passion, don’t give it up.  I hope that you can work until you are able to call it quits on your terms.  Never the less, life does not always work that way.  Plan for the worst and hope for the best.  That is why planning to work until age 70 is not a good plan.

Writing a Financial Plan

Everyone should have a written financial plan.  A written financial plan is a document that assists you to focus on what you want to achieve when it comes to your personal finances.  A written financial plan is a living document that should be amended as time goes on.

A written financial plan is an useful tool for everyone.  It does not matter if you are a new college graduate (Age 21-28) entering the workforce, a Millennial or Gen-Xer (Age 29-49) who is in mid-career, or a young Baby Boomer (Age 50-65) who might be retired or getting ready to retire soon.  The nice thing about writing a financial plan is that it is your custom plan.  You get to design and write it to meet your financial situation and aspirations.

Having a written financial plan allows you to see the big picture.  It is a way to track short-term goals and make lifestyle adjustments as need be.  A written financial plan enables you to track how those short-term adjustments impact your progress as you work towards reaching long-term goals that might not be realized for many decades.

A written financial plan is not just for looking at how your money is invested in your asset allocation.  While asset allocation is extremely important, it is only part of a financial plan.  If you are interested in learning more about asset allocation, I have written a 4-part series on that topic.  A good place to start is by reading 100 Percent Invested in Stocks and the subsequent posts that follow how my asset allocation has evolved during my investing career.

A written financial plan can have many different categories.  Start with where you are in life and where you want your written financial plan to take you in the future.  Below are some categories and examples to consider:

Goals

New Graduate:

  • Pay off student loans (the party is over, here are the damages)
  • Establish an emergency fund (3-6 months of expenses in cash)
  • Contribute to 401K (at least enough to get the employer match)

Mid-Career:

  • Pay off mortgage (pay it off in 15 vs 30 years)
  • Help children with education (establish a 529 college savings plan)
  • Pay off consumer debt (credit cards, car loans, pay-day loans)
  • Increase 401K contributions (increase by 1-2% per year)

Young Baby Boomer:

  • Down-size house (the kids are gone, hopefully they will not come back)
  • Contribute the maximum to retirement accounts (time is no longer on your side)
  • Establish a target-date for retirement (5-10 years)

Income

New Graduate:

  • Select a career field that pays well (think STEM, if you can)
  • Get a job (spend more time on indeed.com)
  • Become an expert in your field (read, read, read)
  • Finding side opportunities to earn extra income (always be earning)

Mid-Career:

  • Advance into management (you now have  the experience to lead others)
  • Become a partner (lawyers, doctors, accountants, other professionals)
  • Buy a business (if you have the entrepreneurial drive)

Young Baby Boomer:

  • Advance to a C-title (if you are already a VP)
  • Become a consultant (if you have industry expertise)
  • Sell the business or your stake in the concern if you are a partner (cash in your chips)

Budget

New Graduate:

  • 25% housing (don’t exceed this amount)
  • 15% savings (it sounds ambitious, but you can do it)
  • 10% transportation (think Honda Civic or Toyota Corolla)
  • 20% towards debt (pay it down ASAP)
  • 30% living expenses (live below your means)

Mid-Career:

  • 20% housing (stick with the starter house)
  • 35% savings (these are your primary savings years)
  • 10% transportation (mini-van for kids)
  • 35% living expenses (keep an eye on life-style creep)

Young Baby Boomer:

  • 10% housing (this is for maintenance)
  • 60% savings (you can see the light at the end of the tunnel)
  • 5% transportation (mid-sized model)
  • 25% living expenses (spend some money on the grandchildren)

Protection

New Graduate:

  • Apartment insurance (you don’t have much, protect it)
  • health insurance (it is as cheap as it is going to get)
  • short-term disability insurance (if you have a physical job)

Mid-Career:

  • Home owner’s insurance (get enough coverage)
  • Family health insurance (it is no longer cheap)
  • term-life insurance (protect you loved ones)

Young Baby Boomer:

  • Have a lawyer write your will (don’t create a mess for your heirs)
  • Create an estate plan (get professional advice if you are not comfortable)
  • Be sure to have health insurance (Medicare kicks in at age 65)
  • Keep some cash liquid (keep the first 2-5 years of retirement expenses in cash)

The above categories are just a few to consider adding to your written financial plan.  As mentioned earlier, you can customize this plan to your unique situation and goals.  Some other options to consider might be plans for continuing education, how volatile your career is during changing economic conditions, family planning, as well as your need to take on market risks due to other income sources such as pensions.

Conclusion

When writing your financial plan, remember to write it in pencil and not in ink.  In other words, the one thing that I have found in life that remains consistent is change.  Over the course of my life, I have watched people change, work situations change, and economies change.  In my own life, I have changed careers, goals, and interests.  This is not a ridged manifesto that must be followed to the letter.  It is just a guide for you to set goals, track progress, and change direction when needed or desired.  Allow yourself to be flexible and enjoy this process.

Do you have a written financial plan?

If you do, what other categories do you have concluded?

How often have you had to make amendments to your financial plan?