Which Retirement Path Are You On?

A recent survey shows there are six paths to retirement. Some readers have the option to choose among several paths. Others will have the decision thrust upon them because of bad luck or as the result of decisions made during their federal career.

The traditional view of retirement is working full-time until turning 65. At that age, you would then quit work. You would then travel, sit and read, go to the beach or the mountains, go to the park to play chess or do whatever it is you have been wanting to do but could not do because you were spending too much time on the job.

The traditional retirement path will still be followed by many but the traditional retirement model is breaking down. Federal employees often have more flexibility in their retirement plans and have the ability to retire earlier than many Americans. Many of them are opting not to work until they are 65 and then sit on the porch in a rocking chair because they are healthy, active, and have the financial resources to do something different.

A new study by the Vanguard Center for Retirement Research says that many people retire from their long-time career but immediately start a new part-time job or become employed.

And, for many of these people, the first step is “downshifting.” That is, they take another job that is less stressful or they work fewer hours than they have been working.

The Vanguard study identifies six paths of retirement that are common today. The most common ones are:

1. Early Retirement

29% of people in the Vanguard study leave their full-time jobs when they are in their 50’s and never go back to work. Sometimes people take this route because they are in poor health. But for many, this option is possible because of a good retirement system that makes it financially possible. Obviously, federal employees that are currently retiring in their 50’s are often in the Civil Service Retirement System (CSRS). Also, federal employees that have invested aggressively in the Thrift Savings Plan for a number of years may be financially able to support an early retirement option if their investments took advantage of the stock market boom that saw stock investments going up rapidly for a few years.

2. Work and Play

About 12% of those surveyed by Vanguard left full-time work in their 50’s but quickly took on significant part-time work or became self-employed. Many people who opt for this route enjoy working or want to stay active in a field they find to be challenging. Of course, the extra money may not hurt either if the retirees like to eat in nice restaurants or take trips they have been delayed during the years of full-time work.

3. Delayed Retirement

35% of people surveyed took this path to retirement. They leave the full-time workforce in their 60’s but then work full or part-time into their late 60’s. One big reason for this way of retiring is often due to financial necessity. The retiree may not have enough money to live comfortably and many have had poor saving habits while working full-time.

The Vanguard study also identified three other retirement paths that are not as common.

These are:

Spouse’s Retirement

Retirees on this path to retirement are often married women who did not work full-time in their 40’s and 50’s and never had a traditional exit from full-time work.

Returning to Work

5% of those surveys retire in the 50’s but then go back to work full-time. In some cases, they missed going to work for social or psychological reasons. In other cases, they needed the money they make from having a job.

Never Retiring

Probably all federal agencies have a few people who have been working for more than 40 years and have no plans to retire. Some of these people actually make less than they would make if they retired but prefer the challenge of going to work, feeling useful in their job and like being around people.

Your ability to retire and live comfortably will depend in large part on how well you have planned for your retirement. Comments from readers indicate that many have been living below their financial means and putting as much as possible into the Thrift Savings Plan or other savings plans in order to accumulate enough in assets in order to be able to follow a plan and retire based on personal interests and preferences. Unfortunately, others have opted not to put money into the TSP or other investment plans either because of lack of financial discipline or not making enough to meet typical living expenses with money left over to set aside for retirement.

Federal employees in the CSRS system did not have to have as much financial discipline: Uncle Sam withdrew the money for your future retirement from each paycheck and will give it back during your retirement years. Those under the FERS system have some advantages. But one big disadvantage is that some employees did not take advantage of the TSP system and the government’s matching funds. Anyone who falls into this category is likely to find fewer retirement options available.

Readers who are still early in their federal career may want to pay attention. If you invest as much as you can early in your career, you are likely to find a more pleasant retirement waiting for you in your 50’s and 60’s. Your biggest advantage is time. The money you invest in the TSP not only has more years to experience compound growth, you also have the advantage of receiving extra funds from the federal government.

But, as in retirement, you have a number of options. Just be prepared to live with the consequences of your decisions.


About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47