Many pre-retirees find they haven’t saved enough money to generate sufficient retirement income to support the life they want in retirement. If this describes you, it’s understandable that you might be disappointed and frustrated as you move closer to retirement. Your most realistic course of action? Look for your “Retirement Plan B.”
This post describes downshifting as a strategy to consider as a possible Retirement Plan B.
Downshifting: The Basic Idea
Suppose you’re in your early 60s, you’re tired of working, and you think your life would be better if you retired. Further suppose that you’ve done your homework and you’ve estimated that you won’t have enough regular retirement income to pay for your current living expenses.
In this case, consider downshifting from working full time to a part-time schedule for a few years. Earn just enough to cover your current “must have” living expenses and some or all of your “nice to have” living expenses.
In addition, don’t start your Social Security benefits and don’t start tapping your retirement savings during this downshifting phase. As a result, both your Social Security benefits and the income generated by your savings will continue to increase until you’re fully retired.
To accommodate your reduced earnings, you’ll most likely need to stop putting money aside for retirement. You might also need to look for other ways to reduce your budget, such as eliminating a few nice-to-have living expenses you don’t really need. These might include dining out, subscriptions, or memberships. Since most retirees will receive less regular income compared to when they were working, consider the time while you downshift as a way to practice for retirement.
One Example: How Downshifting Can Increase Ultimate Retirement Income
The example of Bob and Betty, a hypothetical couple both age 60, illustrates how this strategy could work. Bob and Betty have saved $500,000 for retirement, and they worked with an advisor to estimate how much retirement income they’d receive under a few different scenarios:
- Scenario 1: Retire at age 62. In this scenario, they both continue to work full time while contributing to their savings until age 62. Then they retire full time and both start Social Security and begin systematic withdrawals from their savings.
- Scenario 2: Downshift between ages 60 and 65. In this case, they both work part time between age 60 and 65 but stop contributing to their savings. Then they retire full time at age 65, start their Social Security benefits, and begin systematic withdrawals from their retirement savings.
- Scenario 3: Work full time until retiring at age 65. In this scenario, they continue working full time and contributing to their savings until age 65. Then they start Social Security benefits and begin systematic withdrawals from their retirement savings.
Figure 1 below shows their total retirement income under these scenarios, including both Social Security benefits and systematic withdrawal amounts.
Note that if they follow Scenario 2 and downshift until age 65, their eventual retirement income would be $58,043 per year, more than $10,000 higher compared to their retirement income of $47,281 if they retire full time at age 62.
Also note that if they continue working full time until age 65, their total retirement income would be $61,142, a little more than $3,000 higher compared to the downshifting scenario. As a result, the downshifting strategy doesn’t significantly reduce their eventual retirement income. They might conclude that the reduced retirement income is an acceptable price to pay for not having to work full time between ages 60 and 65.
You can see more details of Bob and Betty’s example in this recent post.
Downshifting’s Benefits
Let’s look at how downshifting can free up time to help you enjoy your life, using the “part time math” method. Suppose you’re currently working five days per week. If you’re like many people, on the weekend, you might spend about one day on household chores, such as shopping, preparing meals, gardening, and paying bills. That leaves one day for you to pursue your interests.
Now suppose you work just three days per week, and you still spend one day on your household chores. You now have three days per week for yourself, tripling the number of days you’ll be able to devote to pursuing your interests.
Downshifting can have other benefits, too, such as continued health insurance through your employer and valuable social contacts.
Based on my own experience, downshifting can be a powerful way to improve your life. I’ve also seen similar improvement in the lives of some of my relatives and friends who’ve adopted similar strategies.
Of course, there can be challenges to make downshifting work, starting with finding part-time work that you like. Nobody promised it would be easy to plan for a long retirement.
Downshifting is just one example of a possible Retirement Plan B. Other Plan Bs could include looking for creative ways to substantially reduce your living expenses or exploring ways to increase your retirement income.
Channel any frustration and disappointment you may have with your situation into motivation to find creative solutions. And take inspiration from Joan Baez: “Action is the antidote to despair.”