Monday, June 23, 2014

Retirement of a Scientist: Can I Afford To Quit Working?

In this series of posts, I'm talking about retirement. In the next few posts, I'll consider some questions that a scientist contemplating retirement needs to answer. Even if you are early- or mid-career, it's important to ponder these questions because they will help you plan ahead for this important stage in your life.

Science is unique, I think, in that many (most?) of its practitioners actually enjoy what they do and would continue doing science even with little or no pay. At least, that is how I've always personally viewed scientific research. This attitude is unlike that of someone who has worked in retail or in a factory making widgets and who cannot wait to retire and never handle another sale or build another widget. Loving what you do makes the decision to retire difficult for some of us in science. Whereas the sales person or factory worker wants to retire as early as it is financially feasible, the scientist may never want to retire…at least not completely.

So what should you consider in making the decision to retire?

Obviously, finances need to be taken into account. When can you afford to stop working? How do you determine this? How do you plan for it? My husband and I began planning and saving as soon as we left graduate school and got jobs—toward the time when one or both of us could no longer work. We weren't really thinking in terms of voluntary retirement back then because we planned to continue working as long as possible. We were young, enthusiastic, and loved doing science. It never occurred to us at the beginning of our careers that we might change our minds about retirement as we got older. We set up the usual savings, investment, and pension plans. Then we didn't think about it much over the next thirty years (although we did make periodic adjustments as our circumstances changed).

As I'll explain more fully in the next post, our attitude toward retirement changed as we aged. Whenever a colleague retired, we would discuss the possibility of our own retirement. When we began talking seriously about retirement, our first step was to see a financial planner who could tell us if and when it would be feasible for us to retire. We did this about six years before the date we tentatively targeted. At this point, we had not yet made the final decision to retire. We just wanted to see if it was feasible to stop working. The answer was that yes, we could retire on that date and live comfortably for the rest of our lives. It's probably much wiser to do this check at least ten years before retirement so that you will have time to make adjustments: increase savings, decrease spending, or delay retirement to get a larger pension. As your situation changes, it's wise to revisit your retirement plan—at least every five years or so. You also want to have a good idea of what level of retirement income you will need to be comfortable. For example, someone who plans to travel extensively in retirement will need more than someone who will stay home and play with the grandkids. There are lots of other considerations such as what the stock market is doing…you may need to delay retirement if markets fall. Also, it's wise to look at your portfolio and revise it as you approach retirement. A financial planner can help with all of this, especially if you are not very good at financial matters.

Here is a good list of (mostly financial) signs that you are ready to retire:

1. You can follow your targeted retirement budget for at least six months (do a trial run to find out).
2. You have reliable health insurance coverage (keep in mind that Medicare (U.S.) won't be available until age 65).
3. Your children are financially independent.
4. You have little debt or are close to it.
5. Your investment portfolio is large and sufficiently diverse to weather a market downturn.
6. You are emotionally ready to quit working (more about this in the next post).

Anyway, our planning exercise told us that finances were not an impediment if we wanted to stop working. Even if the answer had been that we needed to work a bit longer, the financial planner would have been able to tell us when we could retire at our desired retirement income level. In any case, knowing that earliest retirement date is very helpful in planning. You don't necessarily have to select that date; you may decide to delay retirement for other reasons than financial.

Once we knew we could afford to retire, we then had to decide whether to retire. And that wasn't easy.

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