Pretirement can take several years, or even decades, to ensure you plan correctly and have sufficient financial means and a comfortable lifestyle after retirement. But what does the term pretirement really mean for some?
RELATED: Is Now A Good Time To Unretire?
Are You Ready For Pretirement?
What is Pretirement?
Pretirement is the stage in a person’s life where they begin to plan for retirement – the phase between career and retirement. It’s from when you decide you want to retire to your actual retirement, and numerous steps need to be considered.
Some people use this period to cut back on work earlier in life while continuing some work indefinitely, or working later in life. For example, beginning the transition from around the age of 50 and cutting back on work, but doing paid or volunteer work after the age of 65.
Why is Pretirement a Good Idea?
Everyone knows the life model dedicating our first few decades of life to education, then a few more to our careers, ending with retirement in our golden years. But not everyone plans successfully for their retirement.
Sixty-four percent of Americans will retire with less than $10,000 in savings. A 2019 study by GOBankingRanks found that of the 2,000 people surveyed, 45% had no money set aside for retirement, and 19% had less than $10,000.
Therefore, a new paradigm is needed to tackle the current shortfalls. This is where the new pretirement phase of life comes into account.
Actively choosing pretirement allows you to be more flexible in changing life situations and work needs. Although some people decided never to retire fully, retirement is a model that is widely accepted. You work, then you don’t work.
But pretirement can be a blend of both, allowing you to adjust the amount of work and earnings to match your needs, and hopefully, your desires.
What are the Advantages of Pretirement?
There are many advantages to this model.
Unfortunately, many retirees who suddenly stop work often get depressed, feeling they have less purpose or less identity. Staggering the shift from work to retirement allows you to get used to this massive change emotionally. Continuing to work also provides a purpose in life for many.
Pretirement also allows you to mitigate any financial risks inherent to retirement. Having a small amount of income can fill any shortfalls or support unpredictable medical bills.
Staying in employment is also a good option for obtaining healthcare through an employer.
What are the Disadvantages of Pretirement?
However, if more people decide to work longer and save less, what damage will this do to our society?
Currently, the statistics show that people aren’t saving for retirement even though they plan and assume they will retire. If people believe they can work later and preretire, what are the chances that they will save any money at all? Will they plan to work forever or simply rely on government benefits?
Pretirement could be a necessity for some but a preferred choice for others. Those without means for traditional retirement might have to carry on working, but this can be restrictive. It can also potentially be more expensive, having to insure against events that could hinder ongoing payment.
The capability to earn an income is never guaranteed. Many people who want to continue work have their jobs terminated, for example, through failed businesses. As we get older, our health naturally deteriorates, and family problems can change well-laid plans. Therefore, indefinite or prolonged pretirement is not wise.
Decide where you want to live when retired. This could be dictated by the lifestyle you wish to, for example, a quiet and peaceful spot. If you want to free up more money, you could downsize or move somewhere with lower taxes or a cheaper cost of living. You don’t have to wait for retirement to move either. The sooner you downsize, the more money you can save for retirement.
Try a dry run of living off anticipated monthly retirement income from Social Security and additional savings, if any. Ideally, try this for at least a few months. If you find that you cannot support your lifestyle, you may want to delay complete retirement or extend pretirement.
Don’t forget to take into account how long retirement could be. Most people tend to live 25 years after retirement. Twenty-five years is a long time, so consider things like inflation and its effects on your budget.
Retirement can feel isolated for some, especially those who have many social connections through their job. You can plan for this during pretirement by thinking about what you want to do during full retirement and arranging it early, for example, joining clubs and social groups. Consider how you want to spend your free time, for example, traveling or hobbies.
Getting rid of all debts is a great pretirement strategy. Having no mortgage, credit card or car payments will ensure you can control your costs during retirement. Money will be saved on interest which can be put aside for an emergency fund.
Log into your Social Security account as early as possible to check for any shortfalls in payments and check for which paperwork is required. Apply for Social Security about four months before you want to start receiving benefits. The longer you can delay drawing on Social Security, the better because you’ll optimize the payments.
Factor in healthcare costs. Medicare may not cover all expenses, for example, if you chose to travel, or live abroad. Consider private policies to fill any gaps.
Compared to traditional retirement, pretirement has many advantages. So why don’t we all just propose to work less earlier in life, but continue working longer?
Pretirement, paired with some degree of financial independence, is an interesting concept that deserves more thought to address the challenges of modern retirement and the society we live in today, not the society of 1880 when retirement was introduced.
Whatever can be said, pretirement is not a replacement for good retirement planning
What are your thoughts on pretirement? Are you a “pretiree”? Let us know in the comments section below.