How to Trim Your Retirement Savings Needs by $250,000

Would you like to trim the amount of retirement savings that you need by over a quarter of a million dollars and have a more fulfilling life? "You betcha" will be most people's response. One way to achieve this goal is by adopting a new view of retirement and following the guidance in the completely revised second edition of an excellent book: What Color is Your Parachute? For Retirement. It's part of The Parachute Library, and is a supplement to the bestselling What Color Is Your Parachute? A Practical Manual for Job-Hunters and Career-Changers.

Before we get to the potential reduction in your savings needs, let's take a look at the underlying trends. What Color is Your Parachute? For Retirement summarizes well the transition that our society is going through regarding life stages, including retirement. The old view is that we go through three well-defined stages in life:

Development - the time of school and learning
Productivity - when we're contributing to society and are working for a living
Leisure - when we're done being productive, are winding down our lives, and are living on accumulated financial resources

Prior to the Industrial Revolution, our ancestors usually worked right up until they died, so they only experienced the first two stages. The three-stage model developed with the Industrial Revolution and has worked well for the past two or three generations.

The trouble is, this neat model has been shattered by more recent demographic and economic forces. On the demographic side, we're now living so long that the leisure stage -- retirement -- has become too long for us to afford. People retiring in their early to mid sixties can expect a period of retirement of up to thirty years -- it takes a boatload of money to be retired that long!

At the same time, we're accumulating fewer financial resources than prior generations due to a number of factors, including the rise of consumerism and global competition. But the three-stage model is still in our collective consciousness and it underpins the design of many of our retirement programs.

What Color is Your Parachute? For Retirement inserts a new fourth life stage:

Development
Productivity
Development-Productivity-Leisure
Leisure

This new stage mixes new learning, reinvention, renewed productivity and leisure, based on making conscious life choices. It roughly corresponds to the period from age fifty to age seventy-five, followed by a much shorter period of total leisure and winding down (the traditional view of retirement).

I believe this new model of retirement is much more feasible financially for most Americans for these reasons:

You can delay taking Social Security until age 70, which has substantial financial advantages.
It gives you more time to build your retirement savings.
The period of total leisure that you need to finance is much shorter, and you won't need as much money as the old model of retirement.

Here's a simple example of how much your retirement saving needs could be trimmed by adopting this new view of life stages. If you stop working entirely at age 75 instead of 60 or 65, you'll have lopped off 10 to 15 years of retirement that you need to finance. Suppose you need an annual retirement income of $25,000 per year to supplement your Social Security income. Then you've trimmed your retirement bill by $250,000 to $375,000. Your savings are even greater if you need an annual retirement income of more than $25,000 per year, which describes a lot of people.

It's important to note that you'll still have a period of total leisure and winding down -- the traditional retirement. This is inevitable for most people for health reasons. That's why it's still critical for us to save and do our retirement planning. It's a big mistake to count on working in retirement as an excuse not to save today.

In addition to the financial reasons, this new model of retirement may be more healthy and fulfilling for you as well. There's evidence that you'll be healthier and live longer, and surveys show that people are more happy and fulfilled if they are productive and engaged with life.

As I've written about previously, many baby boomers are approaching their retirement years with insufficient financial resources for the traditional retirement of "not working," and they'll need to work in their retirement years. Both Parachute books provide useful insights and a number of exercises to help you make the best choices for this new stage in life regarding work, leisure, health, and where you'll live.

More on CBS MoneyWatch:
Can't Retire Yet? Don't Despair
Do the Downshift to Survive Your Retirement Years
When Should You Start Social Security Benefits? Do the Math!
Does Working Long Increase Your Lifespan?

Steve Vernon

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 Retirement Game-Changers: Strategies for a Healthy, Financially Secure and Fulfilling Long Life and Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck.

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