Should you 'practice' retirement?

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AARP and T. Rowe Price recently floated an idea they call "practice retirement." The pitch is that you can spend more money now and still retire with enough money later. Sound too good to be true? Let's take a look at how this concept works.

The idea goes like this: Stop saving for retirement at age 60, but continue working. Take the money you would otherwise be saving for retirement and spend it on fun stuff. Examples the two companies give are spending time with your grandkids, buying a boat and putting in that pool you've always wanted. Then enjoy your splurges while letting your retirement savings and Social Security benefits continue to grow until you fully retire.

While the concept of practice retirement is sound -- and very similar to strategies I've suggested previously -- there are two catches to this idea. First, you need to have significant retirement savings by age 60 in order for this to work. Second, you need to continue working, because your wages have to cover your living expenses. I've got a few ideas that could actually make this plan work.

First, skip the boat and the pool. It'll be a lot cheaper to pay monthly dues to your local YMCA or boat club. This is an example of the financial resourcefulness you'll need in retirement and is a good way to "practice" retirement. Spend more time with grandkids? Now you're talking. But that doesn't need to cost very much. The bottom line? If you continue to work full time at your current job, keep saving for retirement and don't ramp up your spending habits.

If you're really going to practice retirement, look for ways to dramatically reduce your living expenses. That's the most common way for retirees to make ends meet. This gives you the freedom to work just enough to cover your reduced living expenses. Also, find work that enables you to enjoy life, either by reducing your hours or taking on work that gives you satisfaction.

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The version of "practice retirement" advocated by AARP and T. Rowe Price will only work for the few people who have been able to accumulate significant retirement savings by age 60. Everybody else will need to keep saving like crazy for retirement, continue working, and delay tapping into their retirement savings and Social Security until it's really necessary.

I'm worried that people, being who we are, will just hear, "Stop saving for retirement and spend your money now" -- without examining whether they've already saved enough money to make this concept work. I wholeheartedly agree, however, with one of the main themes behind practice retirement: You should be looking for ways to enjoy life now while continuing to work. Don't view retirement as the only way you can enjoy life to the fullest.

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    View all articles by Steve Vernon on CBS MoneyWatch»
    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.

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