However, a new term has been coined to describe a slightly different final act—one that is more realistic for the majority of Americans. Dubbed “pretirement,” it’s meant to describe a phase between firing-on-all-cylinders full-time work and the sudden stoppage that comes with retirement. This concept—which has been bubbling up among financial experts for the past few years—was originally billed as a way to scale back work before an eventual retirement date, but more pragmatic forecasters see it as an outright replacement to a permanent workforce exit.
- Demelza Campbell, Demelza Campbell is the owner of financial consulting business Parental Wealth.
- Jean Accius, Jean Accius is the senior vice president of global thought leadership at the AARP.
- Ramona Ortega, founder of My Money, My Future
- Silvia Manent, CFA, CFP, Silvia Manent, CFA, CFP, is a financial planner and the founder of Manent Capital, a Boston-based wealth-management firm.
- Tori Dunlap, personal finance educator and founder of Her First $100k, a company dedicated to helping women bridge the wealth gap.
Put another way: If typical retirement is that basic light switch that you simply flip off, pretirement is more akin to a dimmer switch—a phased approach slowly dampened over time.
“It’s incredibly expensive to retire, and some people do not have the money to do so,” says Tori Dunlap, the author of forthcoming Financial Feminist and founder of Her First $100K, a money and career platform for Gen Z and millennial women. “Retiring in and of itself is a massive privilege.”
In fact, Dunlap believes today’s workers—who have fallen behind in building up savings despite more concerted efforts toward long-term financial planning—are having a harder time reaching that retirement light switch in part because the nature of work itself has changed so drastically. “They’re realizing that they don’t want to work in the same job, in the same career, in the same way for 40-plus years,” she says.
According to Silvia Manent, a certified financial planner who manages more than $70 million in investments for her female-focused client base, there’s little incentive for people to do so. “Older generations used to stay at their jobs for their entire careers... They were very loyal to the company, and as part of that loyalty, most companies had pensions, which acted like another form of social security. But pensions, because they are so expensive and because interest rates have been the lowest they’ve ever been, no longer exist with private corporations.” Meaning that the burden of saving for one’s golden years falls entirely on the individual.
"People across generations are looking for different ways to continue to provide, to ensure they have purpose, and that they’re contributing in terms of the income they want to make in our society.” —Jean Accius, senior vice president of thought leadership, AARP
Echoing that sentiment is personal financial advisor Ramona Ortega, who believes that this transition from company-provided pension funds to individualized retirement funds like the 401(k) is a key reason many experts worry we’re facing a potential retirement crisis—meaning that huge numbers of people may not have enough resources to live on once they stop working.
“We didn’t tell people, ‘Oh, hey, by the way, we’re now going to shift this burden to you,’ and at the same time, we’re also not going to teach you anything about what this means,” Ortega says. She’s concerned that reliance on individual investment plans, like 401 (k)s, Roth IRAs, and even cryptocurrency puts key retirement planning tools in the hands of people who lack financial literacy—and leaves them unprepared. “It’s this idea that ‘look, it’s super easy, just push this button,’ when it’s really not.”
What’s more troubling is that this seismic shift is happening now, when the cost-of-living adjustment for 2022 was 5.9 percent, the highest increase in nearly 40 years. Similarly, the current inflation rate, now at roughly 9.1 percent, is the largest annual increase since 1981. And despite severe talent shortages and the seemingly employee-led impacts of the Great Resignation, current wages are no match for these rising costs. Corporate salary raises, projected to average just 3.4 percent, still trail both those rates, while workers are paying more and more for their own benefits. And while some states and cities have passed laws to raise the minimum wage, the federal minimum is still $7.25 per hour—and hasn't been adjusted in 13 years.
As for Social Security? “No one is waiting around for their Social Security check now—it’s never going to be enough,” says Ortega, who founded the Thrive Campaign for building intergenerational wealth in Black and Latinx communities. Social Security is set to run out of cash reserves after 2035, after which time it may only be three-quarters funded (and thus benefits would have to be reduced). New retirees may have a hard time accessing this money at all. That’s because in 12 years, the number of Americans eligible for Social Security will outnumber children for the first time ever—meaning that there will be fewer people in the future whose tax dollars will fund the program.
With all of this in mind, the prospect of retirement is poised to be out of reach for many Americans, particularly for communities of color and for women. And the notion of early retirement may become akin to an urban legend or a financial fairy tale.
But whether it is a realistic antidote to traditional retirement remains unclear. Is it an opportunity for those wanting to live longer, more fulfilling lives? Or is it a compulsory consequence brought on by a troubling mix of personal constraints and global factors beyond one’s control?
“There’s no easy answer,” says Manent. “There’s no one way this goes.”
The Potential of Pretirement
“Pretirement,” at its best might open up later-in-life opportunities for people who know they can’t afford to retire fully—or who may not see traditional “retirement” as an appealing option.
Ortega has found that pretirement seems to mesh with clients who don’t see themselves sitting at home not working in their older years. Instead, she says, many clients want to be working in a different way. “It’s not, ‘I don’t want to work.’ It’s, ‘I don’t want to do that kind of work,’” she says.
The pandemic—and its massive disruptions to our work and personal lives—has also helped make pretirement more appealing to some folks, adds Jean Accius, a senior vice president of thought leadership of AARP. “People have had time to think about what they want to do with their life. What brings them meaning? How do they prepare for their own health and financial resilience, particularly as they age? … People across generations are looking for different ways to continue to provide, to ensure they have purpose, and that they’re contributing in terms of the income they want to make in our society.”
What has followed is a reexamination of what the future of work, and thus retirement, looks like. “We’re seeing people who are going back to school or getting a certificate,” Accius says. “People are doing returnships, in which they’ve left the company but are coming back in different assignments or on different teams. Companies are upscaling and rescaling to provide new avenues for growth. We’re seeing fellowships and reverse mentorships. We’re seeing people who worked in one industry or sector now doing something else entirely or entering the gig economy or entrepreneurship. There’s a lot more movement and flexibility at play here.”
Dunlap sees these efforts toward making one’s working years “more sustainable and attainable” as promising: “There are innumerable ways that you can incorporate better boundaries to have a better work-life balance even if you know full retirement isn’t an option for you.”
Beyond even finding balance, Accius notes, people are seeking “non-linear” lives now: “This idea that it’s a straight path is going to be drastically different in the future, so we need to make sure that the systems we have in place can accommodate the way people are currently living their lives now.”
The Limitations of Pretirement
However, some experts are skeptical of pretirement’s empowering framing. “Pretirement is just another way of saying you have to work forever,” says Demelza Campbell, who owns a financial consulting business called Parental Wealth. “Historically, for a lot of people, particularly people of color, the notion of retirement as this flip-switch never truly existed. They always worked. There was always another job, another hustle, another opportunity to generate money for their families. My father retired from a full-time position, and now he has two part-time jobs. I plan to retire from my day job by the time I’m in my 60s, ideally 50s, but I imagine I’ll keep my own business running for as long as I can.” Essentially, working well into old age is often a financial necessity rather than an empowering choice—nor is it everyone's first choice.
"If you are Black or brown, if you’re LGBTQ+, and if you’re a woman, you might not be making as much and thus not saving enough from the jump. When you realize this and that you’re expected to work for another 40-plus years, minimum, that’s immediately overwhelming and exhausting.” —Tori Dunlap, founder, Her First $100K
To wit, women are already more likely to be impoverished in their retirement years than men, as they tend to have less retirement savings because they more often work lower-wage jobs without benefits or face workforce interruptions due to unpaid caregiving needs. This demographic, Ortega adds, is “doubly impacted” by the financial crunch of retirement thanks to a wage gap across gender lines that further grows depending on race, sexual orientation, and parental status. “If you are Black or brown, if you’re LGBTQ+ and if you’re a woman, you might not be making as much and thus not saving enough from the jump,” Dunlap adds. “When you realize this and that you’re expected to work for another 40-plus years, minimum, that’s immediately overwhelming and exhausting.”
Then, there’s the fact that the longer we live, the more money we’ll need to stockpile—and the longer we might need to work. “When you look at life expectancy, we are seeing that, although there’s great variation, people today are living longer, and one of the biggest fears is that you will outlive your savings,” says Accius. The average American lifespan is 77 years, but many can expect to live far longer, well into their 80s or 90s. “There’s a possibility you might live until 100 years old. Are you prepared to save enough for all those additional years?” If not, you can expect to work (and work hard) late in life.
That said, the ability to work—to earn an income outside of Social Security or to access high-quality health-care benefits beyond federal health insurance provided by Medicare—isn’t always a guarantee. “You have people who want to retire but can’t and people who don’t want to retire but are pushed out because of nefarious reasons, like ageism,” Campbell says. Unexpected illness or disability might also make it harder for a person to work, or limit their options.
How to prepare for your later years (whether or not you choose pretirement)
Whether or not you like pretirement, it likely will be the reality in some form or another for future generations. Older millennials have already come to terms with the idea of always working; per a 2021 survey, 61 percent believe they’ll remain in the labor force in their retirement years. And that’s not necessarily the worst thing in the world for many people.
“Being forced to work indefinitely,” Campbell says, is not ideal. “But if continually earning money provides the ability to make decisions, there’s opportunity there. It’s about making the choices you want to make and not the choices you have to make.”
So how does one start to plan for a pretirement lifestyle—one that is not out of necessity to make ends meet but one that stems from choice? Here's what our experts recommend:
1. Start planning (and investing) early
“It’s not [just] how much you invest but how long you invest, and you need to be compounding your time and interest for as long as possible,” Ortega says. (To wit: Investing $1,000 at age 30 and letting it accrue interest for 36 years will only net you around $5800. That same $1000, invested 10 years earlier, would be worth nearly twice that by age 66—and that’s assuming you never added more money into that account.) But she doesn’t only mean actual dollars in the bank. “You need to figure out what your end goal is, and the sooner you do and make time to plan for that future, the better.” She suggests breaking up that plan into five-to-six-year increments to help make things feel more achievable: “‘Over the next five years, this is what I expect to achieve financially to get me to that life-long goal.’”
2. Be prepared for the unexpected
Understanding how to do this, Accius says, is the greatest financial gift you can give yourself. “Part of making your dreams a reality is to understand the economic shocks that might come along the way and being prepared for them,” he says. Ortega adds that people appreciate this now more than ever. “They realize how important an emergency savings account is because COVID came and everyone’s [investments] got blasted.”
3. Live within your means
Campbell has witnessed many retirement-aged people underestimate how much they need to live off of in their later years. “You cannot wait until you’re in your 60s to look at what your retirement is going to look like for you,” she says. She recommends that in your 50s at the latest, determine how much money you expect to live off of and then try to do so. “Can you practice living like this for 6 months? For a year? What does that look like?” There are a few free budget calculator tools online to help make this easier.
4. Find passive income
Because you might not be able to simply quit or downsize your job, it’s prudent to find passive sources of income if possible. “If you are out of the workforce and not generating revenue, you will likely have to downsize your costs significantly unless you’re independently wealthy or receiving some lump sum through inheritance,” Ortega says. Rental properties are a common antidote to this (although the cost of housing has made this prohibitive for many), as is entrepreneurship. “Maybe you are the creator of something that you can get a licensing agreement on, or you have a book that continues to sell.”
5. Invest in your future…
The 401(k) account is by far the most common employer-sponsored retirement account—if your current employer offers one, you should be contributing to it, maximizing your company’s match, if applicable, and not touch it until you turn 60. (If your company doesn’t offer this benefit or you’re freelance, look into a Roth or SEP IRA instead.) “Keep an eye on it, and toggle the risk over time,” Ortega says. “When you choose funds, especially if you are younger than 35, you’ll want a more aggressive profile because you have enough time for the market to go up and down and average out. As you get older, around 45, move to more moderate-risk funds, and when you are close to retirement age, take the risk down greatly.”
6. …and shorter-term goals
Use different investment accounts for different needs. Ortega recommends having at least three accounts: a 401(k), a Roth IRA, which is similar to a 401(k) but allows for earlier access, and a brokerage account, which she says is often used for big-ticket purchases, like a downpayment on a house or a nest egg to be able to quit your job and start a business.
7. Find companies that foster a multigenerational workforce
A major hindrance to pretirement, particularly for those not planning to start their own side hustle, is age discrimination. “Many companies are managing five generations at any given point in time,” Accius says, and although studies show that knowledge and expertise grow with age, as many as two-thirds of workers 45 to 74 years old experience ageism. This makes it hard for older adults to keep existing jobs or find new ones. Companies must add age as part of their Diversity, Equity & Inclusion policies, Accius advises. “Companies that don’t do this are complicit,” he says, “but it’s also a big mistake for their bottom lines. The workforce is getting older, but so is the consumer base. Addressing systemic issues in their workplace spills over into the communities in which their workers live.”
8. Consider caregiving costs
One of the single greatest risks to your long-term financial security is caregiving. Despite more than48 million people acting as unpaid caregivers in the U.S. today, it’s often an unexpected burden. “You’re in your late 20s, living your life, but then you have two children and think, ‘Oh, wait, I have to pay for college,’” Ortega says. “Then it’s their health care, their security. And then your parents get older. Who’s going to take care of them? You may have an idea of doing certain things, but at the end of the day, as your life continues, those things are going to start to weigh more.” These caregivers often have to leave work early, decline promotions, and quit their jobs entirely, all of which impact their ability to save.
9. Rely on yourself
Manent predicts a recession is looming, and her number one piece of advice is to put yourself first. “People need to be realistic,” she says. “Even if you never plan on quitting your job, as a society, we don’t make it easy on people at older ages. It’s going to get harder and harder. I tell younger clients to save more than they think. You most likely are going to overspend than underspend—emergencies are going to happen where your car is going to break down or you may have to get surgery. Do as much as you can to not depend on a job, on a partner, on anything but yourself. If you want to have a life that you really want, build it on your own.”
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