Retirement. This word has so many different meanings to people. For some it’s freedom; for others it’s the unknown; and for others it’s the start of a new chapter.
The concept of retirement as we know it originated in Germany with Otto von Bismarck in the late 1800s. As the industrial revolution was firing on full cylinders, von Bismarck knew he had to do something to take care of hard-working people who were getting to an age at which they physically could not contribute to the workforce any more.
A few decades later, the United States founded the Social Security Administration to address similar concerns. And thus, the concept of retirement in America was officially born.
In this day and age, we see generally three approaches to retirement:
Traditional retirement. You retire at a specified date and do not go back to work for the remainder of your life. For example, you retire at 60 and live off your pension, investments and Social Security.
Semi-retirement. You retire at a specified date and take on a part-time job for a certain number of years. At some point down the road, you cease working altogether. For example, you retire at 60 and get a part-time job until 75, then fully retire and live off your pension, investments and Social Security.
Temporary retirement/sabbaticals. You have multiple careers throughout your lifetime with time off between them. For example, career 1 (military) ages 18-22, time off ages 22-23, career 2 (law enforcement officer) ages 23-53, time off ages 53- 55, career 3 (security/consulting) ages 55-70. Your retirement is from age 70 onward.
With the development and evolution of modern medicine, life expectancies have continuously been increasing. According to the Social Security Administrations Actuarial Life Tables in 2019, a newborn male has a life expectancy of 83 years old and a newborn female has a life expectancy of 87 years old. That might seem low to you but compared to the 2004 tables (men 75, women 80), life expectancies are increasing. And according to the National Criminal Justice Reference Service Study, police officers are living longer than the general population.
So with life expectancies increasing and the desired retire- ment age for most people decreasing, what does that mean for the outlook of retirement as a whole?
Fortunately, as a law enforcement officer in the state of Flori- da, you have the option of a state-guaranteed pension that can help with expenses throughout retirement, no matter how long you live. But will this be enough? What if you are in the invest- ment plan, or what if your pension does not have a cost of living adjustment?
That’s where financial planning comes in. It is essential to think through these major life events and put yourself in a posi- tion of control. The longer you wait to plan, the less control you have over your destiny.
The easiest advice is to start planning early and to start saving early.
If you were to invest $200 per paycheck (24 pay periods per year) to your deferred compensation plan over your 30-year career, considering an 8 percent average annual rate of return, you would have approximately $596,000 at retirement. But what if you wait 10 years to start making contributions? You would then have to contribute $506 per pay period to have the same $596,000 at retirement. What if you wait 20 years to start making contributions? You would have to contribute $1,630 per pay pe- riod to have the same $596,000 at retirement. That is the power of compound interest (interest earned on interest) and why it is so beneficial to plan for retirement early in your career, even if it seems so far away.
But what if you feel like the ship has sailed on saving early for retirement? What do you do?
At the end of the day, you can’t make money magically appear out of thin air, but you can take control of your situation and gain a full understanding of your options. Map things out. Sit down with a certified financial planner. Take the time to learn more about the second and third types of retirement approach- es listed above, and empower yourself to take control in creating your financial future.
Steve Olson, CFP ®, AEP®
CEO of Atlantic Wealth Partners | Contributor
Steve Olson’s experience spans over a decade of focued tax planing, legal strategy interpretation, investment management, and advisory services to wealthy individuals and families throughout the U.S. Over the course of his still young career, Steve provides counsel and management on individual assets and portfolios ‐ encompassing a combination of securiteis, real estate, privately held businesses and thoer altenative investments ‐ ranging in value from $5 million to over $400 million in value. Steve is currently the Founder and CEO of Atlantic Wealth Partners in Jupiter, FL.
