Your 5 Retirement Options

It turns out retirement is a relatively new concept. Consider these numbers from The Evolution of Retirement by Dora L. Costa:

In 1880, over 75% of men over 64 remained in the workforce.

By 1900, that number had dropped to about 65%.

By 1950, just 47% of men over 64 continued to work.

By 1998, fewer than 20% of men over 64 were in the labor force.

You see, retirement wasn’t always considered desirable. In the 1800s, “mandatory retirement” caused a lot of resentment among older workers and there was a backlash against it.

People wanted to keep working. Work was proof of vitality and productivity. It gave men a sense of purpose and most families needed the money.

However as big corporations grew, they pushed for a younger workforce. Rising wages, private pensions, and social security lead to a flip in the perception of retirement to something more desirable.

In the 1980s, the mandatory retirement policies adopted by law, both officially and unofficially, started to be deemed discriminatory and were abolished.

Today things are even more complex. There are several ways you can retire and each path has its own timeline. Here are the five types of retirement you’ll find in our current economy.

Traditional Retirement

Tell me if this sounds familiar: Get a good job, work hard for forty or fifty years, and then retire around age sixty to enjoy the last decade or two of your life.

During the 20th century, this was considered the standard model of work in the United States. Your retirement was funded through a combination of company pension, personal savings, and government aid.

But by the ‘70s and ‘80s, standards of living had risen enough that some people began to challenge this traditional model. They thought, ‘Why am I waiting until the end to enjoy life?’ There must be a better way.

Early Retirement

This “better way” was early retirement. After running the numbers, employees figured out if you worked hard to increase your income while keeping costs low, you could save enough to stop working at age 50, or 45, even sometimes 40.

What best determines whether or not you can retire early is your saving rate. Traditional retirement requires a saving rate of 10-20%. Early retirement requires you to save nearly half your income — or more.

The more you save and invest, the faster your money can reach what’s called the crossover point — where your income from investments are enough to support your spending. Traditional and early retirement both lead to permanent retirement. But, if you enjoy working, you may want to consider these other three types of retirement.

Temporary Retirement

One of the first books to explore alternative retirement options was Paul Terhorst’s 1988 book, titled Cashing in on the American Dream. Terhorst was an advocate for early retirement, but he also saw another type of retirement, called temporary retirement.

Here’s how he explains it:

We used to work and then retire. [I suggest] you work, then retire, then consider going back to work. Under this plan you devote your middle years to yourself and your family. During those years your mental and physical powers reach their height. You can explore, grow, and invest your time in what’s most important to you. You can enjoy your children while they’re still at home. Later, after you’ve lived the best years for yourself, you can go back to work if you want to. The choice will be up to you.

If you were to follow Terhorst’s plan, you’d go to work for 10-15 years, then take time off to pursue passions and spend time with your family until your money runs out and you have to go back to work.

A lot of early retirees have trouble finding affordable, quality health coverage. One key advantage to temporary retirement is when you return to the workforce later in life, you’ll likely have access to better health insurance.

Semi-Retirement

Temporary retirement was popularized by Bob Clyatt in his 2005 book, Work Less, Live More. What is the difference between semi- and temporary retirement?

Here’s Clyatt:

Semi-retirement is about finding work-life balance. For some, that means continuing with their previous career, but in some sort of reduced capacity. For others, it could mean changing jobs completely to something that pays poorly but offers a sense of satisfaction. And for others, semi-retirement could simply mean supplementing investment income with a carefree job at the local coffee shop or fabric store.

The main advantage to semi-retirement is you get out of the rat race earlier. Even if you’re still working, you have more choices about the kind of work you do. Most people choose jobs or side gigs that are less stressful and more fulfilling.

And because you’ve saved enough that your financial needs aren’t as great, you have the freedom to choose work that pays a bit less.

Mini Retirements

The fifth type of retirement I want to cover is from Tim Ferriss’ 2007 book, The 4-Hour Workweek. Ferriss asks, “Why not take the usual 20-30-year retirement and redistribute it throughout life instead of saving it all for the end?”

With this model, you work on and off as your savings permit. For instance, you might work for five years and then take two years off. You repeat this process over and over again. Hence why they’re called “mini retirements.”

The advantages of taking sabbaticals like this is you get to enjoy retirement and work at every age. The disadvantage is you never amass a lot of savings because you’re constantly spending what you make every few years.

This type of retirement is more geared toward the entrepreneur-type or anyone interested in following an unconventional career path.

Which Type of Retirement Is Right for You?

As you can see, there’s no one right way to retire.

All of the above options offer some advantages and disadvantages. It’s up to you to decide what type of retirement best suits your interests, values, health, and savings.