Surviving and Thriving In The 21st Century
This is a follow up article to Mike Drak’s post: Surviving In A Mad Max World
Recognizing that the old life model no longer works we created a new one, better suited to life in the 21st century. This new model is also not just for boomers, but for people at all the different stages of life.
This approach that I am sharing was originally developed and shared in our book “Victory Lap Retirement” (VLR).
Instead of focusing strictly on retirement the Victory Lap Retirement Model consists of four stages with becoming financially independent (FI) as early in life as possible as being a primary stage that extends throughout all the other stages.
Becoming financially independent is a process that takes time and discipline. You need to understand how money works, you need a continuous source of work income, and you need the discipline to live within your means and save the difference.
Financial independence is the point where you have achieved some level of financial security and are basically self-sufficient.
During the pandemic people who had achieved (FI) didn’t have to worry about paying the rent or putting food on the table. They also had the power to say “no” which came in handy if you happened to work in a meat packing plant and they were forcing you to come back to work even though the place was drowning in COVID-19.
After achieving FI you have three options, you could simply retire like some people, or you could keep working at your current job, or you could pivot into something more interesting and meaningful something we refer to as a Victory Lap which is a new third stage of life between the traditional salaried “primary” career and the end-game of “full-stop” retirement.
Now let’s look at each stage of life and what actions you can take to accelerate your journey towards FI.
Stage 1 – Education
You need to ensure that what you are learning at school, and the skills you are developing is setting you up for a well-paying job. How about learning a trade? Are you good with your hands?
Consider engaging an assessments/career coach to get a good handle on what your natural abilities are and what you might have a passion for, something that you can make good money at. The objective upon leaving school is to find/create work that you are excited about, work that you are very good at, work you could do for the next twenty plus years so you can achieve FI as soon as possible.
Kids need to be taught financial planning and the concept of financial independence while in school. They need to learn the importance of living within their means and how to save. Learning how to manage money properly is a key skill that everyone must have.
Present day truths;
In school you want to figure out what you’re good at, and develop a skill that employers value and will pay you well for such as computer programming, and be better than the rest of the competition.
If you don’t have specialized skills you will always be vulnerable to job loss due to technological advances such as robotics and artificial intelligence
Stage 2 – Work
For our kids to save up enough funds for retirement they will need to be both smart and a little lucky. They will need to retain well-paying jobs until they can achieve FI and avoid economic bad luck along the way.
You do not want to find work that will just help you get by. As the pandemic clearly showed us many young adults were over-represented in the food service, hospitality, and leisure industries. These industries suffered greatly because of the shutdowns to control the pandemic, and vulnerable people, people that were just getting by were no longer able to get by.
Low skilled, low payed workers will always struggle – their pay is barely adequate to raise a family and totally insufficient to fund a long retirement.
Present day truths;
Recent graduates often have to work a few years at part-time or contract jobs until they are able to get their career established.
Education and the acquisition of job-related skills needs to be a life-long process. You need to practice lifelong learning and focus on staying on the leading edge of knowledge in your chosen field of expertise to remain attractive and compete. This takes both time and money, and most importantly don’t expect your employer to pay for it – you will need to invest in yourself.
The introduction of disruptive technologies will result in the elimination of jobs, companies, and entire industries. Consolidations within an industry will result in fewer opportunities.
Woking part-time or experiencing frequent periods of unemployment (re-training) will result in retirement savings being used to fund family living expenses
Companies always work in their best interests – profit maximization. Because employers view fewer full-time employees as the preferred business model there are too few jobs that pay a sufficient salary to allow families to finance a middle-class retirement. Part-time or contract work means earning a significantly lower salary with minimal benefits and no job security.
Technological advancements, robotics, artificial intelligence, and ‘right sizing” will eliminate many jobs and a lack of suitable alternative employment will result in many families facing an uncertain economic future.
Stage 3 – Victory Lap
A victory lap involves working longer but not in the same capacity as your full-time career. It gives you the opportunity to earn an income, while having more time for the fun stuff in life plus it’s better for your physical and mental well-being.
You may continue to work after your full-time employment, but in a different way and at a different pace; and you’ll be able to enjoy much more leisure time than at any time of your life before that.
The idea of replacing your salary, or a portion of it, with some level of active income in Victory Lap can make up for the lack of an employer-sponsored pension plan and takes a lot of stress out of the retirement scenario.
If you are earning active income at least for part of your retirement, you can take less out of your nest egg each year and, therefore, more of it can be reinvested to accumulate and hopefully compound. One of the biggest challenges for retirees is navigating the ups and downs of their returns caused by market fluctuations.
By having a lower withdrawal rate for a few years on the front end of retirement, it’s easier to absorb a lower return or even a negative year or two in the markets. In today’s environment, a 2 to 3 percent withdrawal rate is likely to be covered from the income alone (interest and dividends) in your portfolio.
That is, the sustainably low withdrawal rate enabled by the active income you earn during a Victory Lap means you won’t have to worry as much about the fluctuations in your portfolio value as you’re not depending on capital appreciation, just the income from your investments, to supplement your earned income. This benefit of a Victory Lap should truly allow you to sleep well at night.
Benefits of Working in Stage 3
Taking a Victory Lap means you can continue to have earned income from a business or consulting well into your seventies, which might also allow you to delay triggering Social Security or other pensions until at least age seventy which will increase your payments in the future.
Another big risk inherent in traditional full-stop retirement is inflation and the loss of purchasing power. At four per cent inflation, your buying power halves every eighteen years. Retire at sixty-two, and by age eighty your pension will buy half of what it did at that early retirement age.
Most seniors today are putting too much of their savings into low-risk investments like GICs or CDs (to try and mitigate investment risk), which means that, with historically low interest rates, they are safely going broke!
Continuing to work, at least a little, will enable you to keep topping off your assets, protecting your nest egg from being slowly eroded by inflation. Less risk overall translates into a more secure and sustainable retirement, and that’s better for your pocketbook, your lifestyle, and your peace of mind.
Present day truths;
Women will suffer a disproportionate level of poverty in retirement due to the ‘gender pension gap” and a longer lifespan on average than men.
Many families will experience a decline in lifestyle when they retire.
The Importance Of Intergenerational Support
Boomers like us grew up seeking autonomy and independence because back then we could. Homes were much cheaper, education was cheaper, and it was relatively easy to find a good well paying job. But reality is many people including our kids can’t afford to live like that today. Life is no longer predictable and safe like it was for our parents and that is driving stress levels for our kids through the roof.
Our kids need more schooling to find a good job and that extra schooling costs a lot of money and still there is no guarantee that they will be able to land a good, steady job.
Because of soaring housing prices in large cities without family support homeownership is out of reach for many millennials. COVID-19 is forcing some families to revert back to how things used to be.
What we are currently witnessing in American is the return to a type of intergenerational living arrangement similar to how the “Waltons” lived on TV. The Waltons were a fictional family who lived on a farm in rural Virginia during the Great Depression. They had a strong belief in family values, and working together to overcome any issues that life threw at them. Helping each other was the only way to keep a family afloat during the Great depression and people are discovering that what worked back then works today.
Attitudes about families living together are changing out of necessity.
Living together and supporting each other in order to survive/thrive makes economic sense. It’s cheaper to run one household than two and living this way greatly reduces the stress in peoples lives and fear over their economic futures.
If you think about it there are a number of positives associated with living together.
If you are working on achieving financial independence living with your parents will help get you there faster.
Having your parents now grand parents watch over your kids helps you and gives your parents the gift of purpose.
Moving back in with the parents was a big help for working parents in demanding careers. Being able to work hard, and not having to worry about the kids, and arriving home to a home-cooked meal greatly reduced stress levels.
During the pandemic grand parents who were living with their children or able to form social pods with their family were thrilled to spend precious time with their grand kids and overnight they gladly became childcare workers caring for toddlers and helping their school aged grand children with their on-line daily learning assignments. Grand parents were engaged and felt like they mattered again.
It was a true win-win for everybody and it also gave parents/grandparents a feeling of safety knowing that if something should happen to them there was always someone there to help. Multigenerational living brings families closer together, creating a sense of togetherness, and it’s a godsend, when there is a newborn involved. You don’t have to worry about finding babysitters, and you can spend more quality alone time with your partner.
This type of living arrangement if handled properly (ie everyone contributes in some fashion and respects one another) works, and can save families a lot of money by eliminating child care costs and aged care both of which are very expensive.
In Canada multigenerational living has been the country’s fastest- growing type of housing with an estimated 2.2 million people living with at least three generations of their family.
Housing developers are starting to catch on to this trend and have started building “Next Gen” homes (multigenerational living) family housing designed to meet the different needs of mixed households that work for two or more generations living together. While living together will not work for everybody, it might work for you.
Something to think about.
Covid-19 is also changing our thoughts relating to working and legacy.
Many people intend to keep working to help out their kids financially as well as their elderly parents. Some of them would rather not work but what can they do – watching their kids struggle trying to make ends meet breaks their heart.
Some parents and grandparents have also decided to gift money to their kids/grandkids now instead of twenty years down the road. Provided it will not jeopardize their own retirement it makes sense to give them money now when they need it – when they are struggling with mortgage payments, daycare expenses and saving up for their children’s education.
In summary, it’s dangerous and stressful trying to survive in a Mad Max World, and we need to change our approach to life because what worked in the past doesn’t work anymore. Hopefully some of the ideas presented here will help you put together a long term game plan that works for you.
About the author
Mike Drak is the Author of the best-selling book Victory Lap Retirement and recently released book, Retirement Heaven or Hell. Along with being an Author, Mike is also an award winning blogger, retirement coach and public speaker and has made appearances on BNN, CBC Radio and iHeart radio. He is a thirty-eight year veteran of the financial services industry and lives with his wife Melina in Toronto, Canada. You can contact Mike through LinkedIn
