Your parents’ reality: Get a job. Work your way up the ladder. Contribute to a 401(k). Retire at 65.
Your reality: Career paths take all sorts of twists and turns. Raises aren’t keeping up with inflation. You’re still paying on student loans. And retirement seems… distant.
Things have changed, and the traditional retirement model we’ve heard of might not be the best way forward anymore. That’s why many younger adults are exploring new, non-traditional retirement strategies to help propel them toward the future they envision for themselves.
“Retirement is evolving,” says author and early retirement blogger Tanja Hester. “Younger people are opting in, and traditional retirees are taking on second act careers and other fun work. Its definition is changing, and those of us pursuing a different path in life are some of the ones changing it.”
Pursuing financial independence
When Sharon Tseung started her first 9-to-5 job, making $30,000 a year as a marketing coordinator, “I was shocked that adults just do this every day until they are 60," she says. Determined to achieve financial independence, she continued living with her parents until her mid-20s, cultivated multiple online side hustles, and invested most of her money in retirement funds, rental properties and a brokerage account.
By age 30, she had achieved the coveted million-dollar net worth sought after by followers of the popular FIRE movement (Financial Independence, Retire Early), a retirement approach that emphasizes extreme frugality, aggressive saving and retiring before middle age. The FIRE movement attracts “followers in their 20s, 30s and 40s who reject the notions that income earning must steer the bulk of adult life, and that the reward of retirement must wait for their golden years,” says Vox.
Even if you’re highly motivated, it takes a fair amount of privilege to retire by age 30 —typically a six-figure income, the ability to save between 50-75% of your earnings, and virtually no debt. However, many younger adults are adapting FIRE principals to meet their own economic realities and achieve a work-life balance that works for them. Some are choosing a more relaxed approach, delaying their early retirement in favor of working jobs they find fulfilling. Some save aggressively until they reach a point where they can allow their investment portfolio to “coast,” relying on compound interest to get them the rest of the way to retirement.
As young adults increasingly pursue strategies that blur lines between work and retirement — from lifelong entrepreneurship to passive income streams to early retirement — it may be time to start reframing the way we talk about retiring.
For starters, instead of asking what kind of retirement you want, a more relevant question might be to consider what type of work-life balance you want both during and after your career. Are you willing to work hard and make sacrifices now so you can retire early? Or would you prefer to be your own boss and enjoy a more balanced life now, even if it means retiring later?
4 strategies for a non-traditional retirement
Here are a few examples of alternative retirement strategies that can help you work incrementally toward the future you want.
1. Invest intensely
If you want to achieve financial independence, says personal finance author Erin Lowry, it’s time to stop “saving” for retirement.
“What you’re actually doing is investing for retirement. There is power in the words we use, so it’s important we start to acknowledge ourselves as investors,” she says. “People need to understand that they are putting their money to work for them in the stock market instead of letting it languish in a savings account.”
While hardcore FIRE adherents invest as much as 75% of their income, others aim for a more conservative (but still aggressive) 50%. In addition to contributing to an IRA or 401(k), they may pursue more active investment opportunities such as real estate.
2. Cultivate multiple income streams
Even if you don’t have a million dollars yet, having multiple sources of passive income can allow you to live as if you’re already retired — or you can keep working and double down on your savings so you’ll retire with even more.
This is where your side hustles can come in handy. Whether it’s an Etsy store, rental property, monetized YouTube account or other online business, having more than one passive or low-maintenance income stream can help you save more aggressively or coast toward retirement, depending on your preference and style.
3. Minimize living expenses
The financial independence movement isn’t all about making loads of money on the stock market and retiring in luxury. In fact, it began as a backlash to the excesses of consumerism. Many early retirees achieve their financial goals through extreme frugality, allowing them to put the bulk of their income toward retirement.
For some that might mean downsizing to a smaller home, moving to a more affordable city, or using alternative transportation instead of owning a car. It can also include reducing energy consumption, paying off debts, changing your approach to meals, living with a roommate, or giving up luxuries.
Minimizing your living expenses is always a wise move, especially in times of uncertainty. The more frugally you live now, the less you’ll need to live on when you retire.
4. Become an entrepreneur
Many young adults don’t fancy buckling down at a high-paying job just so they can save up. Instead, they’d rather spend their whole lives pursuing their passion, even if it means they keep working well into their senior years. Becoming your own boss allows you to create a balanced and sustainable work life that can adapt to your needs as you age.
If this route appeals to you, you’ll want an individual retirement account (IRA) to help supplement your income in your later years. Even if you don’t plan on fully retiring, contributing to an IRA now will help take some of the pressure off as you age, allowing you more financial freedom.
Regardless of which path you end up choosing, your retirement strategy will play a key role in helping you live the lifestyle you want — both now and in the future. Once you have a goal in mind, your next step is to talk to a financial planner, make a retirement plan and choose the investment option that’s best for you.
If you’re looking for some guidance to get started on your future vision, our team can help create a roadmap with you. Get started planning with our Investment Services team today.
