Reverse Retirement: Are You Prepared?Trevor Gerszt
What do you think of when you think of retirement? A relaxing vacation on the beach, daiquiri in hand, watching the sun go down over the water? Or how about a brisk hike through the Alps, taking in the bright blue rivers and jagged snow-capped mountain peaks? For most people that’s the dream, but for more and more that’s no longer the reality.
More Retirees Working Full-Time
One-third of retirees eventually come back to work full-time. It’s known as reverse retirement, ending retirement to get back into the workforce. If you want to ensure that you won’t have to do that, you’ll need to prepare well while you’re still working and save up enough money to make sure that you can live comfortably without having to continue working.
The rate of reverse retirement is highest among those at both the highest and lowest levels of income. At the lowest levels of income, earners likely haven’t saved enough to actually retire. Perhaps they expected a pension that couldn’t be paid, or expected to live off Social Security and realized only after drawing their benefits that it was far too little to live on.
Those at the higher levels of income are in many cases the hard chargers who can’t bear to stand still. Without the constant ability to set and meet business goals, life to them just seems boring. Plus, they’ve probably been accustomed to a pretty comfortable standard of living, and going back to work affords them the ability to keep that standard pretty high.
The key, then, to avoiding reverse retirement is to do two things: save enough to live comfortably, and live within your means. The two work hand in hand. You’ll first have to realize that not having a steady income means that you will have to trim back any extraneous expenditures. You’ll also have to budget for increasing expenditures such as health care, which will consume an ever-greater portion of your income.
Better to Save More Than Less
Remember that it’s always better to save too much money than too little. When it comes to expenses such as health care, current growth rates are at around 5.5% per year. But if you budget for increases of 8% instead, you’ll hopefully end up saving more than you need. In the worst case scenario, if health care cost increases accelerate, you’ll come out right where you budgeted. Health care will be an important factor for any retiree. It’s already estimated that a 65-year old couple retiring today will need nearly a quarter of a million dollars just to pay for healthcare.
When it comes to assuming the growth rate of your assets, it also pays to be conservative. Stocks may have averaged more than 7% annual growth over the past 40+ years, but if you assume that you’ll only get 5% annual growth, you’ll end up saving more. Again, in the worst case scenario in which growth rates really are that low, you’ll be set. But if growth returns to its historical average then you’ll end up with quite a nice little nest egg.
Gold Versus Financial Investments
You also need to figure out how much inflation will eat into your savings. Because of central bank monetary policy that shoots for a minimum of 2% price inflation annually, you have to invest in assets that earn at least that much per year in order to keep from losing money. Most retirement advisors advise retirees to become more risk-averse as they approach and eventually enter retirement. They’ll advise, for instance, moving from stocks into AAA corporate bonds or US Treasury debt, or investing in certificates of deposit (CDs).
Their thinking is that retirees want to hedge their risks and minimize their exposure to volatility, investing in “safe” assets. But CDs and government bonds barely offer returns that keep up with inflation. The TSP’s G Fund, which tracks government bond prices, earned less than 2% last year. CDs won’t get you over 2% yields unless you’re willing to tie up your money for 3-5 years, and even then, many require you to invest at least $25,000.
Do you really want to have your money unavailable to you, earning a pittance, for that amount of time? What retirees need is an asset that keeps pace against inflation but that also serves as a hedge against default risk and financial volatility. Thankfully there’s an asset that does all of that: gold.
Since the United States government officially abandoned the last vestiges of the gold standard in 1971, gold has actually provided greater average annual returns than stock markets. That’s taking into account the current low price of gold and super-high prices of stocks. Once the stock market bubble crashes and investors rush into gold as a safe haven, gold’s advantage over stock markets will widen.
Gold also isn’t as volatile as stocks. Yes, the price fluctuates, but not nearly to the same extent that stocks do. That’s why so many investors trust gold as a long-term protector of wealth and hedge against inflation.
With a gold IRA, you can even invest in gold by rolling over funds from existing IRA or 401(k) retirement accounts. That affords you the ability to invest in gold and benefit from its protective aspects while still enjoying the same tax protections given to traditional IRA accounts. When you look at how gold protects against inflation, outperforms stock markets, and offers stability to retirement portfolios, there’s really no reason for investors not to invest in it.